Alexander, Phillipa --- "Costs column: Calderbank offers: Effective or not?" [2018] PrecedentAULA 13; (2018) 144 Precedent 52

• In Shape Shopfitters Pty Ltd v Shape Australia Pty Ltd (No. 4),8 Mortimer J refused the respondent's application for costs on an indemnity basis in accordance with a Calderbank offer sent after two mediation sessions and a co-operative discovery process and shortly before the applicant's evidence was due to be served. The respondent offered to pay $35,000 in compensation and to pay the applicant's costs to the date of the offer. Ultimately, the applicant abandoned any claims for compensation or damages, so the offer was clearly more favourable than any order for damages that the applicant could have obtained in the proceedings. In resisting the application, the applicant argued that the offer was made at an early stage of the proceedings. This argument was rejected by Mortimer J,9 who regarded the timing as ‘relatively neutral’. However, this factor was also relied upon by her Honour as the consideration which might be said to be the most favourable to the applicant.10 Although Mortimer J regarded the matter as relatively evenly balanced, she was not positively satisfied that the applicant's conduct in rejecting the offer was unreasonable and no order for indemnity costs was made.

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CALDERBANK OFFERS: EFFECTIVE OR NOT?

By Phillipa Alexander

Calderbank v Calderbank^[1] addressed whether a non-prejudicial settlement offer could be used as the basis for an order for indemnity costs. Although it was found that this practice was permissible, these orders are becoming difficult to obtain.

Two tests^[2] must be satisfied before the failure of a party to accept a Calderbank offer will mean they are liable for the offering party’s costs (on an indemnity basis from the time of expiry of the offer):

(a) that there was a genuine offer of compromise; and

(b) it was unreasonable for the offeree not to accept it.

A number of stumbling blocks in obtaining an indemnity costs order emerge from recent authorities.

LACK OF CLARITY

In Chawla v FAL Healthy Beverages Pty Ltd (No. 2) (Chawla),^[3] Dicker SC DCJ opined that the failure of the plaintiff to accept the Calderbank offer was not unreasonable in the circumstances because the terms of the offer required the plaintiff to grant ‘full releases and indemnities’ and to agree to ‘confidentiality and non-disparagement clauses’. It was unclear what these terms meant and no proposed draft deed was provided by the offeror. It was therefore not unreasonable for the plaintiff not to accept the offer and no indemnity costs order was made.

Similarly, in Walsh v Umoona Tjutagku Health Service Aboriginal Corporation (ICN 7460) (No. 3)^[4] (Walsh), the Calderbank offer was expressed as an offer of payment of $95,000 to be paid within 14 days of the execution of ‘an appropriate deed of settlement and release’. The terms of the deed were not set out in the letter of offer. Charlesworth J held that the offer was illusory because the conditions attached to the it were unknown and it was therefore not capable of acceptance at that time.^[5]

While English courts^[6] have long held that an offeree who does not seek further clarification of an uncertain offer may be regarded as having unreasonably rejected the offer, this principle does not appear to have been argued in Chawla or Walsh.

IS IT A CALDERBANK OFFER AT ALL?

Correspondence which warned about costs consequences if the proceedings were not discontinued was not categorised as a Calderbank offer by Gibson DCJ in Deputy Commissioner of Taxation v Young (No. 2).^[7] Her Honour noted the qualitative differences between an offer of compromise, a Calderbank offer and correspondence warning about costs consequences.

COMPETING CONSIDERATIONS

In Shape Shopfitters Pty Ltd v Shape Australia Pty Ltd (No. 4),^[8] Mortimer J refused the respondent's application for costs on an indemnity basis in accordance with a Calderbank offer sent after two mediation sessions and a co-operative discovery process and shortly before the applicant's evidence was due to be served. The respondent offered to pay $35,000 in compensation and to pay the applicant's costs to the date of the offer. Ultimately, the applicant abandoned any claims for compensation or damages, so the offer was clearly more favourable than any order for damages that the applicant could have obtained in the proceedings. In resisting the application, the applicant argued that the offer was made at an early stage of the proceedings. This argument was rejected by Mortimer J,^[9] who regarded the timing as ‘relatively neutral’. However, this factor was also relied upon by her Honour as the consideration which might be said to be the most favourable to the applicant.^[10] Although Mortimer J regarded the matter as relatively evenly balanced, she was not positively satisfied that the applicant's conduct in rejecting the offer was unreasonable and no order for indemnity costs was made.

INTERLOCUTORY INJUNCTION IN PLACE

A defendant's Calderbank offer to settle an employment contract dispute on the basis of agreeing to a restraint of trade until 31 January 2017 and the payment of the plaintiff's costs of the proceedings was held to be reasonably rejected by the plaintiff, notwithstanding that the defendant ultimately obtained substantial damages on his cross-claim of $423,445. An interlocutory injunction had been obtained by the plaintiff, which initially extended two months beyond 31 January 2017, and McDonald J^[11] held that it was not unreasonable to reject the offer to retain the benefit of the interlocutory injunction, although acceptance of the offer would have saved the plaintiff the full amount of the damages.

UNENFORCEABLE

An offer by a defendant to consent to orders in relation to restraint of trade and the use of confidential information was given little weight, as the orders were held likely to be unenforceable in any practical way by Black J in DXC Connect Pty Ltd v Deibe & Ors.^[12] For this reason, the offer was regarded as involving no real element of compromise. Black J also held that the time of one day for acceptance of the offer was too short a period to consider the offer.

INTERLOCUTORY APPLICATION

The question of whether a Calderbank offer can found an order for indemnity costs in respect of an interlocutory application for security for costs arose in In the matter of Norwest Group Pty Ltd .^[13] Black J considered that it was an open question as to whether a Calderbank offer can support an application for costs where the application is settled and there had been no determination on the merits. His Honour noted that Patten AJ^[14] had doubted that a Calderbank offer could be relied on where a party had obtained a favourable verdict that did not result from a trial on the merits. Black J did not decide the question, finding that it was not unreasonable for the defendants not to have accepted the offer based on the information as to the plaintiff's financial situation available to them at the time, and that the offer was initially open for acceptance for only two days, which was inadequate.

CONCLUSION

While a Calderbank offer may be effective in persuading an opposing party to settle on the proffered terms, if the offer is rejected and a more favourable outcome is ultimately achieved, a Calderbank letter appears to be of limited and uncertain effect in securing an order for indemnity costs. A more assured course would be to make a formal offer of compromise in compliance with the Uniform Civil Procedure Rules 2005 (NSW) or equivalent provisions in other jurisdictions.

Phillipa Alexander is a specialist in legal costs with Costs Partners. PHONE [phone] EMAIL [e-mail].

This article has been prepared for Precedent by Costs Partners. For more information on Costs Partners, please go to www.costspartners.com.au.

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^[1] [1975] 3 All ER 333.

^[2] Miwa Pty Ltd v Siantan Properties Pte Ltd (No. 2) [2011] NSWCA 344 at [8].

^[3] [2017] NSWDC 304 (1 November 2017).

^[4] [2017] FCA 1203 (9 October 2017).

^[5] Ibid, [41].

^[6] Butcher v Wolf [1999] 1 FLR 334; Hobin v Douglas [2000] PIQR Q1; Phyllis Trading v 86 Lordship Road Ltd [2002] 2 EGLR 85.

^[7] [2017] NSWDC 294 (31 October 2017).

^[8] [2017] FCA 1277 (31 October 2017).

^[9] Ibid, [16].

^[10] Ibid, [21].

^[11] Crowe Horwath (Aust) Pty Ltd v Loone (No. 4) [2017] VSC 656 (30 October 2017).

^[12] [2017] NSWSC 1356 (5 October 2017).

^[13] [2017] NSWSC 1398 (13 October 2017).

^[14] Lincoln v Pendonna Pty Ltd [2004] NSWSC 1138 at [13].