03
Apr 2017

Last Minute Offers of Compromise: When will the Court grant leave to withdraw?

In the recent decision of Project Gas Services Pty Ltd v Leaseplus Operations Pty Ltd [2017] VSCA 55  (Project Gas Services) the Supreme Court of Victoria, Court of Appeal set out some useful guidance for parties to litigation considering making an Offer of Compromise following the commencement of a hearing.

Facts

Leaseplus Operations Pty Ltd (Leaseplus) and Project Gas Services Pty Ltd (PGS) entered into an agreement for the lease of vehicles by Leaseplus to PGS. Two years later, PGS purported to terminate the agreement, following which Leaseplus commenced proceedings claiming PGS owed Leaseplus  the sum of $1,065,639 for loss of profit and interest pursuant to a termination clause contained in the agreement (Termination Amount). Leaseplus also pleaded that if it did not recover the Termination Amount, it had suffered loss and damage by reason of PGS’s wrongful repudiation of the agreement.

PGS denied that Leaseplus was entitled to the Termination Amount as there was inherent uncertainty and inconsistency in the relevant clause, which it considered void for uncertainty . Further, it denied that it had wrongfully repudiated the agreement, pleading that any loss suffered by Leaseplus should be offset by any amounts received from the re-sale of the vehicles and that Leaseplus had failed to mitigate its loss.

In support of their respective positions, both Leaseplus and PGS relied upon evidence of  expert accountants, who ultimately produced a joint expert report. The joint experts, whilst agreeing on the quantum of the Termination Amount, could not agree on  the appropriate discount to be applied due to a lack of sufficient information regarding quotes to other customers, and could not come to a consensus as to the amount of loss of profit suffered by Leaseplus.

Following the issuing of the joint expert report (2 days prior to hearing) PGS served an Offer of Compromise on Leaseplus in the amount of $525,000, maintaining its position that the Termination Amount clause was void for uncertainty, citing the disparity between the experts as to the appropriate discount rate.

During the course of the hearing, after certain revelations about the availability of information which would likely have assisted the experts, Leaseplus abandoned its claim for the Termination Amount. Further in cross-examination, Leaseplus’ expert gave evidence that he did not have sufficient information to arrive at an appropriate discount rate due to insufficient information regarding Leaseplus’ business and the proper discount rate may have been higher than the one he had adopted in the joint report.

In light of these matters, PGS applied to withdraw its Offer of Compromise on the basis that the withdrawal of the Termination Amount claim and the cross-examination of Leaseplus’ expert was a sufficient change in circumstances to warrant leave being granted (which is necessary in order to withdraw an Offer of Compromise). Shortly before the hearing of that application, Leaseplus accepted the offer.

Principles

Pursuant to rule 26.03(5) County Court Civil Procedure Rules 2008 (Vic) an Offer of Compromise may only be withdrawn in the period of time it is open for acceptance by leave of the Court.

The granting of leave is discretionary. The appropriate consideration when determining if leave should be granted to a party to withdraw an Offer of Compromise is whether there has been a sufficient change in circumstances since the offer was made to make it just that the party making the offer is permitted to withdraw that offer. As such, there is no broad proposition regarding  a “sufficient change in the circumstances” and the granting of leave will be determined on the facts of a particular case.

Judgment at first instance

Judge McNamara outlined that the granting of leave was a balancing exercise between the following considerations:

  1. A party making an offer should not be unjustly held to the offer when the facts and circumstances change so significantly; and
  2. The statutory rules surrounding the withdrawal of an offer were established to create certainty around attempts to settle proceedings.

In refusing leave Judge McNamara opined that the abandonment of the Termination Amount claim could have been anticipated by PGS from a number of circumstances, not just the discovery of the Excel screenshots. In any event, PGS was at all times, both prior to and following the commencement of the hearing, confident it would overcome the Termination Amount claim. PGS was at all times aware of the vulnerability of Leaseplus’ expert and had the advantage of its own expert. PGS was aware of all of the difficulties contained in Leaseplus’ case, however it still proceeded with the Offer of Compromise.

PGS appealed the decision.

Decision on appeal

In dismissing PGS’s appeal, the Court had regard to the following matters, amongst others:

  1. The oral evidence given by Leaseplus’ expert was not materially different from the evidence contained in the joint expert report. PGS was at all times aware of the tentative opinion of Leaseplus’ expert.
  2. There was nothing fundamentally new or different in the evidence to suggest a change in circumstances that would make it unjust to hold PGS to its offer.
  3. The facts of this case can be contrasted with the position where new evidence comes to light that PGS could not have discovered using reasonable diligence. In that situation there may be a change of circumstances to warrant withdrawal.
  4. The inclusion of a weak claim that is later abandoned does not alter the circumstances so as to make it unjust to refuse leave to withdraw an Offer of Compromise. The abandoning of this aspect of Leaseplus’ claim could be attributed to any number of factors, not specifically the evidence given by Leaseplus’ expert or the discovery the new information which would likely have assisted the experts.

In light of all of those matters, the primary judge’s determination to refuse leave to PGS to withdraw its offer was upheld.

Takeaway points

The decision in Project Gas Services is a timely reminder of the risks of making an Offer of Compromise pursuant to the Rules shortly before or during the hearing of a matter as it is frequently the case that parties will seek to abandon or change a part of their claim or defence at the eleventh hour.  Given that certain changes of that nature will be insufficient to warrant a party obtaining leave to withdraw their Offer of Compromise, parties should always be mindful of these possibilities when making an offer and factor those issues into their decision making process.

For more information, please contact ERA Legal.