On second thoughts... Can a settlement offer be accepted even after it has been rejected?

Parke v Rubenstein [2020] FCA 1466

The Federal Court of Australia has held that an offer to settle made pursuant to its Court rules may remain open, even after it has been expressly rejected or a counter-offer has been made. The judgment has implications for a party involved in making or accepting an offer under court rules.

• An offer made under court rules may be validly accepted at any stage during the acceptance period, even after it has been expressly rejected 
• That offer can only be terminated in the circumstances listed in the court rules  
• Lawyers should be aware that the offer may remain live, even in the face of other negotiations, whilst legal costs escalate

Background

In January 2020, former Labor MP Melissa Parke commenced defamation proceedings against a number of respondents, including Mr Dave Sharma, for publications which she alleged accused her of anti-Semitism.

On 15 July 2020, Mr Sharma made an offer to settle the proceedings pursuant to Part 25 of the Federal Court Rules 2011 (the Rules). In compliance with the Rules, which require that an offer be open for at least a 14-day period, the offer was stated to be ‘open to be accepted for 28 days’, with the effect that it would expire on 12 August. Two days later, on 17 July, Ms Parke contacted Mr Sharma’s lawyer, rejecting the offer and making an alternative counter-offer in writing. Ms Parke then served her own offer to settle pursuant to the Rules on 30 July, with neither of those offers receiving any response. 

On 12 August, Ms Parke served a notice of acceptance of Mr Sharma’s 15 July offer. Mr Sharma's lawyer responded, asserting that the offer was no longer open given that Ms Parke had expressly rejected it and made counter-offers. The lawyer gave evidence that following Ms Parke’s rejection of the offer, she had taken steps to progress the matter to trial, including preparing evidence and compiling documents for discovery, resulting in further costs and disbursements of an estimated $25,000.

The Decision

The Court considered the common law principles relating to offer and acceptance. It confirmed that under common law principles, rejection will terminate an offer, and the making of a counter-offer constitutes implied rejection. If this matter had proceeded along by common law principles, Ms Parke’s rejection of the 15 July offer and making of counter-offers would have taken Mr Sharma’s offer out of play, making it incapable of acceptance at a later date.

The Court stated that the common law rules relating to offer and acceptance do not apply to Part 25 of the Rules, and Mr Sharma’s earlier offer could not be said to have been terminated, either by Ms Parke’s express rejection of it or by virtue of her counter-offers.

In reaching that conclusion, the Court considered the construction of Part 25 of the Rules, which states that an offer can only be withdrawn during the period in which it is open for acceptance if a more favourable offer is made or if the Court grants leave (r 25.07). The offer is otherwise open to be accepted at any time before the expiration of this period (r 25.08). An offer made pursuant to the Rules may therefore only be withdrawn in one of the two circumstances listed in rule 25.07 and the Court stated that such circumstance does “not include a rejection of an offer by the offeree”.

The Court held that because Mr Sharma’s offer was not validly withdrawn pursuant to the Rules, it was open for acceptance at any stage prior to and including 12 August 2020 and there was nothing preventing Ms Parke from accepting the offer on that date. The additional expenses incurred by mr Sharma had no bearing on the decision that what Ms Parke did was clearly permitted under the Rules. She was entitled to see if she could obtain a better result by rejecting the offer and testing the defendant with her own counter-offers, whilst preserving her ability to retreat and accept Mr Sharma’s offer if she were unable to do so.

Implications

This decision highlights the rigidity within which the rules of court dictate the way in which rule-based negotiations can proceed. This is likely to be at odds with what parties will be used to in commercial negotiations, or even settlement offers outside of the Rules. The decision highlights the liberty that an offeree has in deciding whether or not to accept an offer (or make their own counter-offer), and places the onus on the offeror if it wishes to withdraw an offer prior to its expiration.

Under the Rules, the settlement window remains open, even if a party takes steps to progress a matter prior to the offer expiring. The offer may be accepted at any stage during the acceptance period, even after it has been rejected and/or a counter-offer made.

While this case turned on the Federal Court Rules, it is likely that similarly drafted provisions in other court rules may have the same application.[1] These rules typically maintain that offers will be open for acceptance during the period stipulated in the offer and may only be withdrawn during this period where specific conditions listed in the rules are met. Further, these rules are generally silent on what constitutes ‘rejection’ of an offer or the effect that rejecting an offer may have; suggesting that even express rejection may not be sufficient to validly bring an offer to an end.

A party can avoid the strictures of an offer under the court rules by using a Calderbank[2] letter, mindful that this process leaves costs in the discretion of the court, based upon principles that are less certain than the formalised and certain processes that turned out to be a setback to Ms Parke.

The issuing and acceptance of formal offers under court rules is a technical process and each case should be the subject of carefully considered advice.