Background
Sungchell Gong was injured while working at AWI Steel Pty Limited’s factory and successfully sued AWI in negligence. Schmidt AJ entered judgment for Mr Gong in April 2026 (Gong v AWI Steel Pty Limited [2026] NSWSC 331), and later resolved a dispute about the calculation of damages, awarding $1,846,266.21 (Gong v AWI Steel Pty Limited (No 2) [2026] NSWSC 513). Both judgments were the subject of a consent stay pending any appeal by AWI.
The remaining dispute concerned costs. On 25 August 2025 — before the October and December 2025 hearing dates — Mr Gong made both a formal offer of compromise purportedly under r 20.26 of the Uniform Civil Procedure Rules 2005 (NSW) and a separate Calderbank offer, each proposing settlement for $1,200,000 plus repayment of $522,739.81 to the workers compensation insurer (totalling $1,722,739.81). AWI did not accept either offer. On 8 September 2025, AWI’s solicitors raised objections about ambiguity and non-compliance with the Workers Compensation Act 1987 (NSW) s 151Z. On 11 September 2025, Mr Gong’s solicitors replied, amended the offers to address AWI’s stated concerns, and offered a time extension. AWI did not respond.
At trial Mr Gong bettered his offer by approximately $123,526.40. He then sought indemnity costs from the day after his offer was made, relying on r 42.14 (offer of compromise) and, alternatively, the Calderbank principles. AWI contested both bases.
The Court’s Holding
Schmidt AJ held that the formal offer of compromise was invalid under r 20.26 because it did not specify the proposed orders for disposal of the claim, as required by r 20.26(2)(a)(ii). That omission was not cured by the 11 September letter. Because entry of judgment without notice to the other party is permitted upon acceptance of a compliant offer under r 20.27(3), clarity as to the proposed orders is essential. The defect meant that the automatic indemnity costs rule in r 42.14 was not engaged and costs remained in the Court’s discretion under s 98 of the Civil Procedure Act 2005 (NSW).
However, the Court held that AWI’s rejection of the Calderbank offer — as amended by the 11 September letter — was unreasonable in all the circumstances. The offer involved a genuine and significant compromise of a claim particularised at over $4 million. By 11 September AWI had been given a clear and complete settlement figure, its stated concerns about workers compensation repayment had been fully addressed, and an extension of time had been offered. AWI nonetheless did not reply. The proper inference was that AWI understood the amended offer and chose to risk a worse outcome at trial — a risk that eventuated.
The Court ordered that AWI pay Mr Gong’s costs on the ordinary basis up to and including 11 September 2025, and on an indemnity basis from 12 September 2025 (the day after the amended Calderbank offer was communicated), including the costs of the costs motion but not the costs of the stay motion, which had already been resolved by consent.
Key Takeaways
- A formal offer of compromise under r 20.26 of the UCPR must specify the proposed orders for disposal of the claim; an offer that omits the proposed orders is invalid and will not attract the automatic indemnity costs consequences under r 42.14, even if the settlement sum is clear.
- An invalid r 20.26 offer can still operate as a Calderbank offer if the surrounding correspondence makes plain that it is intended to be relied upon on costs — but only where the offer independently satisfies the Calderbank requirements.
- A party that raises objections to a settlement offer, receives a direct response that addresses every stated concern, is offered additional time, and then fails to reply at all will have difficulty persuading a court that its rejection was reasonable; silence in those circumstances supports an inference that the offer was understood and deliberately declined.
- Under the Civil Procedure Act 2005 (NSW) s 56, parties have an obligation to facilitate the just, quick and cheap resolution of proceedings; a party that identifies an alleged ambiguity in a settlement offer but makes no effort to clarify it before rejecting the offer may be found to have acted unreasonably for costs purposes.
Why It Matters
This decision is a practical reminder for litigants and practitioners that technical compliance with the offer-of-compromise rules is not optional. Omitting the proposed orders — even where the monetary terms are perfectly clear — is enough to invalidate an offer under r 20.26 and forfeit the Rule’s automatic cost-shifting mechanism. The case confirms the approach in Farmer v Broadspectrum (Australia) Pty Ltd (No 3) [2024] NSWSC 53, reinforcing that in personal injury litigation involving third-party repayment obligations (such as workers compensation paybacks), the precise form of the orders matters because acceptance can lead to judgment being entered without further notice.
At the same time, the decision illustrates that a well-constructed Calderbank offer can fill the gap left by a defective formal offer, provided the offeree’s rejection is shown to be unreasonable. AWI’s failure to respond to a clear, amended offer — made well before trial, allowing adequate time for consideration, and addressing every concern AWI had itself raised — was treated as the paradigm case of unreasonable rejection, resulting in the same indemnity costs outcome the plaintiff would have obtained under r 42.14.