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Calderbank letters and offers of compromise

To top [8-0500] Introduction

In broad terms, these two devices provide a sanction as to costs against a party who unreasonably fails to accept an offer of settlement. Settlement is thereby encouraged and a measure of relief is afforded to the party who incurs costs unnecessarily as a consequence of such unreasonable conduct.

A Calderbank letter (Calderbank v Calderbank [1975] 3 All ER 333) leaves costs in the discretion of the court, subject to principles which have been developed in relation to the instrument. By contrast, an offer of compromise made under UCPR Pt 42 Div 3 provides a more certain consequence as to costs.

To top [8-0510] Calderbank offers

The term relates to an offer of settlement expressed to be without prejudice save as to costs.

A Calderbank offer may be in writing or oral. However, if oral, evidentiary issues may arise and less weight may be given to the offer in the circumstances of the case: see Gilsan v Optus (No 4) [2005] NSWSC 1073 at [30]–[32].

An effective offer may be made before action: Ofria v Cameron (No 2) [2008] NSWCA 242 at [27].

Principles relating to Calderbank offers

The informal offer must operate against the background of the court’s discretion with respect to the award of costs which is to be exercised, presumptively, in favour of an order that “costs follow the event”: Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [7]. Frequently, the approach that is taken is to ask two questions, namely whether (a) there was a genuine offer of compromise, and (b) it was unreasonable for the offeree not to accept it: Miwa at [8]; cited in Tati v Stonewall Hotel Pty Ltd (No 2) [2012] NSWCA 124 at [10]. Where a party has unreasonably failed to accept such an offer, the letter may be tendered in support of an application for a special order for costs.

The application may be made by a successful party seeking an order for costs on an indemnity basis (contrary to the general rule that costs are awarded on the ordinary basis, previously called “a party and party basis”), or by a losing party seeking an order for costs, possibly on an indemnity basis (contrary to the general rule that costs follow the event).

The decision is an exercise of the court’s general discretion as to costs.

Costs may also be ordered on an indemnity basis in favour of a defendant who has made an offer better than the result obtained by the plaintiff, but there is no presumption in favour of such an entitlement: Jones v Bradley (No 2) [2003] NSWCA 258 at [8]. However, there is no presumption (specifically in the context of Calderbank offers) that an offeree who does not accept an offer and does not obtain a more favourable judgment will necessarily pay indemnity costs from the date of the offer. This is not to be taken to be indicative of any view on the meaning or content of r 42.14: Tati v Stonewall Hotel Pty Ltd (No 2), above, at [9].

Discretionary considerations are at large. Mostly, they will bear on whether the failure to accept the offer was unreasonable. Some will be peculiar to the case in hand: see Ritchie’s at [42.13.25], Thomson Reuters at [r 42.15.80], Commonwealth of Australia v Gretton [2008] NSWCA 117. A relevant factor is the modesty of the claim: Ofria v Cameron (No 2), above, at [24].

There is a degree of flexibility in assessing Calderbank offers:

(a)

such an offer may be inclusive of costs, unlike a formal offer under the Rules (see [8-0520]): Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322; Monie v Commonwealth of Australia (No 2) [2008] NSWCA 15,

(b)

it may be framed to relate to the costs of particular interlocutory proceedings,

(c)

a shorter period of time for acceptance of the offer may be considered reasonable: see Red Engine Group Pty Ltd v Hotel Agencies Pty Ltd [2007] VCC 398,

(d)

an offer of compromise which fails to comply with the Rules may nevertheless still be regarded as amounting to a Calderbank offer: Elite Personnel Pty Ltd v Salmon, above, at [16]; SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [84]. However, the intention to rely upon the offer as a Calderbank one should it be defective under the Rules must be made clear: Dean v Stockland Property Management Pty Ltd (No 2) [2010] NSWCA 141; Old v McInnes [2011] NSWCA 410.

To top [8-0520] Offer of compromise

The rules under Pt 42 Div 3 provide for a formalised offer of compromise and a relatively certain consequence as to costs depending on the outcome of the proceedings.

An offer of compromise under the rules is an alternative to the informal and less predictable Calderbank letter.

The rules are not reviewed here comprehensively. The treatment is selective.

Rules and principles relating to the offer of compromise itself

Pursuant to r 20.26(1), the offer may be limited to one or more of several claims made in the proceedings: Whitehouse Properties Pty Ltd v Bond Brewing (NSW) Ltd (1992) 28 NSWLR 17.

The closing date for acceptance of an offer of compromise made two months or more before the trial must be not less than 28 days after the offer is made: r 20.26(7)(a). An offer made less than two months before the trial must be left open for such time as is reasonable in the circumstances: r 20.26(7)(b). As to reasonable time, see Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2008] NSWCA 85; Hancock v Arnold (No 2) [2009] NSWCA 19; Pittorino v Yates [2009] NSWCA 87; Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [18]. The onus is on the party rejecting the offer to show why the timeframe was not reasonable: Azar v Kathirgamalingan (2012) 62 MVR 462 at [207]. In assessing what was “such time as is reasonable in the circumstances”, the fact that the offer is made to a person under legal incapacity might sometimes be, or give rise to, a relevant factor: Azar at [207].

Offers of compromise referring to costs, such as “costs as agreed or assessed” or “plus costs”, were rejected as invalid in a series of decisions of the NSW Court of Appeal: Old v McInnes [2011] NSWCA 410 at [105] (cf Vieira v O’Shea (No 2) [2012] NSWCA 121 at [22]). Rule 20.26(2)–(7) has been amended. Rule 20.26(3)(a)–(c) will permit the making of a valid offer of compromise where the offer contains specific references to costs, such as no order for costs, costs in a specified sum, costs up to a specified date, or from a specified estate or fund. Offers of compromise “inclusive of costs” remain invalid: r 20.26(2)(c).

In addition, an offeree unable to assess the offer of compromise should seek further particulars or documents in accordance with the procedure set out in r 20.26(4) and (5).

Where the offer of compromise makes no provision for costs, a plaintiff accepting the offer is entitled to costs on the ordinary basis up to the time when the offer is made: r 42.13A(2). Where the offer proposes judgment in favour of a defendant, the defendant is entitled to costs against the plaintiff accepting the offer from the date the offer is made: r 42.13A(3).

The offer must involve a real element of compromise: Tickell v Trifleska Pty Ltd (1990) 25 NSWLR 353; Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358. In more recent cases, it has been held that an offer must involve “a real and genuine element of compromise”: The Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) (2006) 67 NSWLR 706 at [8]; Dean v Stockland Property Management Pty Ltd (No 2) [2010] NSWCA 141 at [14]; Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [9]; Barakat v Bazdarova [2012] NSWCA 140 at [51(e)]; Prosperity Advisers Pty Ltd v Secure Enterprises Pty Ltd [2012] NSWCA 192 at [108]–[109]. As to whether an offer did involve any element of compromise where a discount of less than 5% of the judgment was offered, see Amaca Pty Ltd v Hicks (No 2) [2011] NSWCA 360. The offer to forego costs already ordered in a party’s favour was sufficient to constitute a real element of compromise: Doyle v Hall Chadwick [2012] NSWCA 175 at [71].

An offer to accept payment of the claim in full does not ordinarily qualify: Richardson v Hough [1999] NSWSC 448. An offer to settle a weak plaintiff’s case need not be substantial: Leichhardt Municipal Council v Green [2004] NSWCA 341.

An offer of compromise may not be withdrawn during the period specified for acceptance without the leave of the court: r 20.26(11). Considerations which may allow an offer of compromise to be withdrawn include mistake in formulating the offer which should have been apparent to the opposite party (Lewis v Combell Constructions Pty Ltd (1989) 18 NSWLR 528; Mohamed v Farah [2004] NSWSC 482); and new evidence discovered by the party making the offer (Scanruby Pty Ltd v Caltex Petroleum Pty Ltd [2001] NSWSC 411), or filed by the opposite party: Young v Combe (unrep, 29/7/93, NSWSC) per Hodgson J.

Acceptance of an offer of compromise may be withdrawn by leave or in the circumstances specified in r 20.28. For authorities relevant to leave to withdraw an offer of compromise, see Ritchie’s at [20.28.5].

The fact of an offer of compromise may not be disclosed in a pleading or in an affidavit: r 20.30(1). Subject to r 20.30(3), see below, no communication in respect to an offer of compromise may be made to the court at the trial where the offer is not accepted: r 20.30(2). The general law has the same effect in relation to interlocutory proceedings, the offer of compromise being impliedly “without prejudice”: Macplan Logistic Systems Pty Ltd v Baxter Healthcare Pty Ltd (1996) 39 NSWLR 324 and s 131 of the Evidence Act 1995.

Notwithstanding wrongful disclosure at a hearing, the judge has a discretion to continue the hearing rather than being disqualified: Harvey v Harvey [1965] QWN 41; Murphy v Murphy [1963] VR 610.

Rule 20.30(3) provides that an offer of compromise may be disclosed to the court for the purpose of calculating interest, in relation to costs after all questions of liability and relief have been decided, and for the purpose of certain specified statutes such as the Motor Accidents Act 1988.

The consequences of acceptance and non-acceptance of an offer of compromise in relation to costs

The headings appearing over the rules in this division omit reference to the parties making and accepting the offer in each instance. The circumstances in which each rule applies are stated fully in the following review. In considering whether a result is less, as, or more favourable to the plaintiff than an offer of compromise under the Rules, the amount of costs recoverable is not to be taken into account: Atkinson v Zey [2008] NSWCA 30 at [7].

Rule 42.13A applies where an offer of compromise made by a plaintiff or a defendant is accepted by the opposite party: r 42.13A(1).

The consequence specified in r 42.13A(2) is that the plaintiff is then entitled to an order for costs on the ordinary basis, up to the time when the offer was made. That is so unless the offer is for a verdict for the defendant, each party to bear its own costs, or the court otherwise orders.

Rule 42.14 applies where an offer, made by a plaintiff, is not accepted by the defendant, and the plaintiff obtains a result no less favourable to the plaintiff than the offer: r 42.14(1).

The consequence, specified in r 42.14(2), is as follows. Unless the court otherwise orders, the plaintiff is entitled to the plaintiff’s costs in respect of the claim:

(a) 

assessed on the ordinary basis up to the time from which those costs are to be assessed on an indemnity basis under para (b), and

(b) 

assessed on an indemnity basis:

(i) 

if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, and

(ii) 

if the offer was made on or after the first day of the trial, as from 11 am on the day following the day on which the offer was made.

The phrase “in respect of” has been liberally construed as including the costs of an application for extension of the limitation period: McLean v The Commonwealth (unrep, 22/8/96, NSWSC) per Sperling J.

There is a strong presumption in favour of the ordinary consequence of the rule. Exceptional circumstances are generally required to justify a departure: Morgan v Johnson (1998) 44 NSWLR 578; Amaca Pty Ltd v Mathwin [2005] NSWCA 364; Macquarie Radio Networks Pty Ltd v Arthur Dent (No 2) [2007] NSWCA 339; Dalma Formwork (Australia) Pty Ltd v Maricic (No 3) [2008] NSWCA 29; Rosebanner Pty Ltd v EnergyAustralia (No 2) [2011] NSWCA 150.

However, in Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368, it was held that rr 42.14, 42.15 and 42.15A did not specify that exceptional circumstances or the avoidance of substantial injustice must be established before the court will make a different order. It was held that instead the discretion should be one that is exercised having regard to all the circumstances of the case: at [15].

In Barakat v Bazdarova [2012] NSWCA 140, it was noted by Tobias AJA that there now appears to be a conflict of opinion in the Court of Appeal “as to whether a court can otherwise order for the purpose of the indemnity costs rule in the absence of exceptional circumstances”: at [48]. The issue was flagged in Jovanovski v Billbergia Pty Ltd (No 2) [2010] NSWSC 617 at [5]; Dargan v United Super Pty Ltd (No 2) [2011] NSWSC 1527 at [4]; George v Webb [2012] NSWSC 86 at [39]–[40], however, the cases were decided without having to deal with the issue. In Barakat v Bazdarova, it was also considered not necessary to decide whether exceptional circumstances were required before the court may “otherwise order” for the purposes of r 42.14(2): at [50]. Instead, Tobias AJA outlined the factors he took into account in deciding whether the circumstances relied upon by the appellants constituted exceptional circumstances or circumstances which, even though not exceptional, would justify depriving the respondent of indemnity costs: at [50]–[51].

A marginal difference between the offer and the result does not justify departure from the rule: Houatchanthara v Bednarczyk (unrep, 14/10/96, NSWCA) per Clarke J.

Departure from the rule has been held to be justified where the plaintiff’s case at trial is significantly different: Fowdh v Fowdh (unrep, 4/11/93, NSWCA), or where the costs are wholly disproportionate to the amount involved and the proceedings were brought for an ulterior purpose: Jones v Sutton (No 2) [2005] NSWCA 203 at [32]–[43].

Rule 42.15 applies where an offer, made by a defendant, is not accepted by the plaintiff, and the plaintiff obtains a result as or less favourable to the plaintiff: r 42.15(1).

The consequence, specified in r 42.15(2), is as follows. Unless the court otherwise orders:

(a) 

the plaintiff is entitled to an order against the defendant for the plaintiff’s costs in respect of the claim, to be assessed on the ordinary basis, up to the time from which the defendant becomes entitled to costs under para (b), and

(b) 

the defendant is entitled to an order against the plaintiff for the defendant’s costs in respect of the claim, assessed on an indemnity basis:

(i) 

if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, and

(ii) 

if the offer was made on or after the first day of the trial, as from 11 am on the day following the day on which the offer was made.

Rule 42.15A applies where an offer, made by a defendant, is not accepted by the plaintiff, and the defendant obtains a result as or more favourable to the defendant: r 42.15A.

The consequence, specified in r 42.15A(2) is as follows. Unless the court otherwise orders:

(a) 

the defendant is entitled to an order against the plaintiff for the defendant’s costs in respect of the claim, to be assessed on the ordinary basis, up to the time from which the defendant becomes entitled to costs under paragraph (b), and

(b) 

the defendant is entitled to an order against the plaintiff for the defendant’s costs in respect of the claim, assessed on an indemnity basis:

(i) 

if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, and

(ii) 

if the offer was made on or after the first day of the trial, as from 11 am on the day following the day on which the offer was made.

Rule 42.16 provides that, for the purposes of rr 42.14, 42.15 and 42.15A interest or damages in the nature of interest is to be disregarded insofar as it relates to the period after the day on which the offer was made.

To top [8-0530] Offer to contribute

Where contribution is claimed and the party against whom the claim is made makes an offer to contribute, the offer, similarly, may not be disclosed to the court until all questions of liability, debt or damages have been decided: r 20.32.

The rule does not require any particular formality in an offer to contribute.

The consequences of acceptance and non-acceptance of an offer to contribute in relation to costs

Rule 42.18 requires only that a court must take the fact and content of an offer to contribute into account in exercising its discretion as to costs.

To top [8-0540] Application to probate proceedings

UCPR Pts 20 and 40 apply to proceedings concerning the administration of a deceased person’s estate: Trustee for Salvation Army (NSW) Property Trust v Becker (No 2) [2007] NSWCA 194 at [21] and Stewart v Atco Controls Pty Ltd (in Liq) (No 2) (2014) 88 ALJR 811.

Legislation

  • Evidence Act 1995, s 131

  • Motor Accidents Act 1988

Rules

  • UCPR Pt 20, rr 20.26(1), 20.26(2), 20.26(7), 20.26(11), 20.30(1), 20.30(2), 20.30(3), 20.32, Pt 40, 42.13A(1), 42.14(1), (2), 42.15(1), (2), 42.15A, 42.16, 42.18.

Further references

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