Recently, the Victorian Court of Appeal, in Project Gas Services Pty Ltd v Leaseplus Operations Pty Ltd  VSCA 55, upheld the decision of the County Court, which had refused an application to withdraw an offer to settle in circumstances where the party receiving the offer had halved its initial claim.
The case related to damages for the premature termination of a head car lease agreement. Leaseplus was claiming:
- liquidated damages for approximately $1 million in relation to wrongful termination of the agreement (Termination Amount); and
- unliquidated damages relating to lost profits and interest for approximately $1 million (Lost Profits).
The calculation of the Lost Profits before trial was very contentious. The experts’ joint report stated that they had insufficient information to make a definite assessment. Each expert proposed a number of various discount rates to apply.
On the Friday before trial, Project Gas Services made an offer to compromise the entire claim for $525,000. The offer was made under the County Court Civil Procedure Rules 2015 (Vic) (Rules) (which are virtually identical to the offer to settle provisions in the Uniform Civil Procedure Rules 1999 (Qld)).
Under the Rules, offers to compromise must remain open for 14 days. To withdraw an offer before this time requires leave of the court.
At trial two relevant matters came to light:
- First, Leaseplus was no longer claiming the Termination Amount. This resulted in an immediate 50% reduction in the size of the claim.
- Second, Leaseplus’ expert cracked in the cross-examination and stated it was likely that the discount rate to be applied to the Lost Profits was higher than previously estimated and he was not in a position to determine it with any precision.
During the lunch break of the trial, Project Gas Services applied to the Court to withdraw its offer to compromise. Before the application was listed, Leaseplus accepted the offer.
The first instance decision
In an unreported decision, the County Court identified the correct test to apply, which is whether there had been a sufficient change in circumstances, since the offer was made, to make it just that Project Gas Services withdraw the offer.
Applying this test, the County Court declined Project Gas Services’ application for leave to withdraw the offer for the following reasons:
- Not all circumstances where new evidence comes to light are sufficient to justify the grant of leave to withdraw the offer.
- Project Gas Services had always assessed the Termination Amount as not recoverable and had actually stated as much in its letter to Leaseplus containing the offer to compromise. Project Gas Services was always aware of the weakness of this claim before the trial and so Leaseplus’ withdrawal wasn’t a substantial change in circumstances.
- Leaseplus’ expert had earlier stated in the joint report the same reservations expressed in cross-examination. Accordingly, Project Gas Services would not have had some sort of epiphany in this respect.
Because this was an appeal against a court’s decision not to exercise a discretionary power, it was common ground that Project Gas Services had to establish an error of law by the County Court.
Project Gas Services made two primary arguments:
- The primary judge had erred in the application of the test by considering irrelevant matters, such as the offer having been made so shortly before trial and Project Gas Services having always assessed the Termination Amount claim as weak.
- The primary judge had erred in the application of the test by failing to consider relevant matters, namely the reduction in the monetary size of the claim and the cross-examination of Leaseplus’ expert.
The Court of Appeal dismissed Project Gas Services’ appeal for the following reasons:
- The time at which the offer is made is a relevant consideration. If an offeror chooses to make an offer under the Rules shortly before, or during, trial, the offeror takes the risk that its offer might turn out to be too generous in light of the evidence.
- At a superficial level the abandonment of the Termination Amount claim might appear significant. However, the inclusion of a weak claim and its later abandonment does not constitute a substantial change in circumstances, regardless of the monetary amount.
- Leaseplus’ expert’s uncertainty was prevalent in the joint report, so there wasn’t anything fundamentally new in his cross-examination. Further, the uncertainty associated with the applicable discount rate for the Lost Profits could cause no more than $120,000 reduction in the claim and was therefore not substantial.
A strategic analysis is always required when making an offer to settle litigation. However, that judgement call is even more important where the offer to settle expires during trial because of the increased risks.
Parties should carefully consider the merits of the other side’s case before making an offer late in the piece, as they might very well be held to that offer.
If you would like more information about these issues please contact Rocco Russo, Imogen Kenny or another member of our litigation and dispute resolution team on 07 3231 2444.