Courts encourage settlement of monetary disputes by facilitating offers of settlement and attaching significant costs consequences where a party ‘beats’ a formal offer. Courts can act in this manner as costs of a proceeding are in the discretion of the court[1] and the rules provide for cost consequences attaching to formal offers.[2] There is, however, another discretionary element of relief that has not been used in this manner, at least in Queensland.
Section 58(3) of the Civil Proceedings Act 2011 (Qld) allows the court to award interest on a claim for debt or damages ‘at the rate the court considers appropriate for all or part of the amount and for all or part of the period between the date when the cause of action arose and the date of judgment’.[3] The primary purpose of the award of interest is to compensate the plaintiff for having been deprived of the use of their money.[4] A secondary purpose is to discourage defendants from ‘stone-walling’.[5] Interest is not awarded to punish the defendant.[6]
Section 58 may be compared with s. 100 of the Civil Procedure Act 2005 (NSW), which is in similar terms but contains an additional provision that: ‘In any proceedings for damages, the court may not order the payment of interest under this section in respect of the period from when an appropriate settlement sum was offered (or first offered) by the defendant unless the special circumstances of the case warrant …’: s. 100(4).
The purpose of this article is to explore whether an award of interest could or should be used in Queensland to incentivise parties to make earlier and more realistic offers of settlement. The model which is considered below is one where interest is either withheld, or allowed at a higher rate, depending on how parties’ offers of settlement compare to a final judgment. The intent of the article is to raise the topic as one for further discussion; rather than to propose any particular change in legislation or to the practice of the courts.
Rule 353 of the UCPR permits a party to serve a formal offer of settlement. The rule could (and arguably should) be strengthened to require parties, or to permit the court to order the parties, to serve formal offers of settlement. The points in time, or the stages at which, this might occur could be fixed by the court or else set by default (e.g. on each anniversary of the commencement of the proceedings or after the close of pleadings, disclosure, evidence, mediation etc). A plaintiff that did not file an offer could be deemed to have made an offer for the full amount of its claim. A defendant that did not file an offer could be deemed to have made an offer that the claim be dismissed. Advantages of such an approach include encouraging parties to consider and act upon the possibility of settlement and to permit competing offers to be compared at the same point in time.
Parties could be encouraged to make realistic offers of settlement by attaching substantive consequences for a party’s claim for interest. While there are many ways in which this could occur, the following discussion assumes a model with the following elements:
- Each party’s offer is compared with the final judgment of the court;
- If the plaintiff’s offer is closer to the judgment than the defendant’s offer, then the plaintiff receives a higher award of interest on a portion of the judgment for the period after the offer;
- If the defendant’s offer is closer to the judgment than the plaintiff’s offer, then interest is withheld on a portion of the judgment for the period after the offer; and
- The outcome is subject to any contrary order of the court.
A number of scenarios are modelled below. They each assume that:
- The plaintiff claims $1 million against the defendant; and
- The eventual judgment was $500,000.
In the first two scenarios, neither party ‘beats’ the final judgment, but one party was ‘closer’ than the other. In the final two scenarios, one party beats the final judgment and has a ‘better’ offer than the other party.
Scenario #1: neither offer beats judgment but plaintiff closer
- Plaintiff offers $600,000;
- Defendant offers $100,000;
- As the plaintiff’s offer was $300,000 closer to the judgment than the defendant’s offer,[7] the plaintiff receives bonus interest[8] on this portion of the judgment ($300,000) from the date of the offer. The remaining $200,000 attracts interest at the usual rate.[9]
Scenario #2: neither offer beats judgment but defendant closer
- Plaintiff offers $900,000;
- Defendant offers $400,000;
- As the defendant’s offer was $300,000 closer than the plaintiff’s offer,[10] the plaintiff receives no interest on $300,000 from the date of the offer. The remaining $200,000 attracts interest at the usual rate.
Scenario #3: plaintiff beats judgment
- Plaintiff offers $400,000;
- Defendant offers $100,000;
- As the plaintiff’s offer was $500,000 better than the defendant’s offer,[11] the plaintiff receives bonus interest on the full $500,000 judgment from the date of the offer.
Scenario #4: defendant beats judgment
- Plaintiff offers $800,000;
- Defendant offers $600,000;
- As the defendant’s offer was $400,000 better than the plaintiff’s offer,[12] the plaintiff receives no interest on $400,000 from the date of the offer. The remaining $100,000 attracts interest at the usual rate.
One disadvantage of the above approach is complexity; particularly as the applicable interest rate (i.e. bonus interest or usual interest or no interest) might vary from one offer date to the next. However, it may be that a calculator similar to the present interest calculator of the Supreme Court[13] could be developed to assist practitioners in this regard.
The approach may also be of limited application. It may not be suitable in multi-party disputes or small claims and would not apply to claims for non-monetary relief.
However, the approach would create a significant incentive for parties to make early and realistic offers of settlement. Given the costs and complexity of commercial litigation, this might be worth the candle.
[1] See, for example, rule 681 of the UCPR.
[2] Rule 353ff of the UCPR.
[3] The section does not apply where interest is payable of as right, whether because of an agreement or otherwise: s. 58(2)(b).
[4] Whitaker v Federal Commissioner of Taxation (1988) 82 FCR 261; 153 ALR 334 at 340.40.
[5] Whitaker at 340.50.
[6] Whitaker at 340-341.
[7] The plaintiff offered $100,000 more than the judgment. The defendant offered $400,000 less. The plaintiff’s offer was $300,00 closer. The applicable formula in scenario #1 is: (J-D) minus (P-J), where J = judgment ($500,000), D = defendant’s offer ($100,000) and P = plaintiff’s offer ($600,000).
[8] Say, 10%.
[9] Say, 5%.
[10] The plaintiff offered $400,000 more than the judgment. The defendant offered $100,000 less. The defendant’s offer was, therefore, $300,000 closer than the plaintiff’s offer. The applicable formula in scenario #2 is: (P-J) minus (J-D).
[11] The plaintiff beat the judgment by $100,000. The defendant was $400,000 short of beating the judgment. The plaintiff’s offer was, therefore, $500,000 ‘better’ than the defendant’s offer. The applicable formula in scenario #3 is (J-P) + (J-D).
[12] The defendant beat the judgment by $100,000. The plaintiff was $300,000 short of beating the judgment. The defendant’s offer was, therefore, $400,000 ‘better’ than the defendant’s offer. The applicable formula in scenario #4 is (D-J) + (P-J).
[13] https://www.courts.qld.gov.au/courts-calculator/calculator
