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The Costs Effect of “Rules Offers” v “Calderbank Offers” Print E-mail

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By Rob Ivessa 

Summary

The general rule as to costs is that they follow the event[1] and are determined on the standard basis[2] unless the Court orders otherwise.

An offer to settle made by a party that is not beaten by the opposing party may affect operation of the general rule in 2 ways:

  1. If the offer to settle is made pursuant to the Court rules[3], making it a “Rules offer”, then the Rules[4] prescribe a new set of general rules as to costs subject to the Court ordering otherwise.

  1. If the offer is expressed to be “Without Prejudice Save as to Costs” and pursuant to the principles in Calderbank v Calderbank[5] (known as “Calderbank Offers”) then the Court will take it into account in exercising its discretion as to whether to depart from the general rule.

Rules Offers

For an offer to qualify as a Rules offer there are a set of rigid criteria it must meet. The offer must:

  1. Be in writing and explicitly state that it is made pursuant to Rules;[6]

  1. Be open for acceptance for at least 14 days;[7]

  1. Contain terms capable of forming part of a Judgment[8] (or according to some cases, at least be directly comparable to a judgment).

Rules offers also have a number of unique rigid features:

  1. They may only be revoked by leave of the Court.[9]

  1. They may only be accepted in writing and do not lapse on the making of a counter offer.[10]

 Rules offers confer far greater benefits to plaintiff[11] offerors and Federal Respondent offerors than Queensland defendant offerors.

Plaintiffs

Under the Rules if an offer made by a plaintiff is not accepted and is not beaten by the defendant then if the Court is satisfied that the plaintiff was willing and able to carry out the offer then the Court must order the defendant pay the plaintiff’s costs on the indemnity basis unless the defendant shows the Court why another order is appropriate. Such orders are only made in exceptional circumstances.[12] In Queensland indemnity costs orders are made for the whole matter whereas under the FCR[13] indemnity costs are only ordered from the second business day after the offer was served.

Federal Respondents

Federal respondent offerors, who do better in a judgment than the terms of their refused offer, are entitled to whatever the usual costs order would have been[14] up to the second business day after service of the offer and indemnity costs thereafter. If the applicant’s proceeding is dismissed, the same cost order will be made if an offer was unreasonably refused.

Queensland Defendants

Under Rule 361 UCPR a defendant offeror, whose offer is not accepted and not beaten by a plaintiff, will receive an order that the plaintiff to pay their costs on the standard basis from the date of the offer (and the defendant must pay the plaintiff’s costs up to that date on the standard basis).

The lessening of an incentive on a defendant to make a Rules offer the longer the matter runs is addressed by Rule 361(3) which provides an additional incentive that if a defendant makes an offer on or after the first day of a trial the default position is that they are entitled to indemnity costs from the day of the offer onwards.

The difference in drafting between the two rules (for plaintiffs and defendants)[15] shows that the Court retains discretion to depart from the default position (eg to award a defendant offeror indemnity costs) should circumstances warrant; although the discretion to depart from the default position is exercised reluctantly and only in exceptional cases.[16] One such case is if the offer was not a sincere attempt to settle the matter. The Courts will consider the sincerity of an offer and have previously not given credence to offers of a nominal degree of compromise seen as merely litigation tactics rather than a sincere attempt to settle the matter[17].

Calderbank Offers

History

Traditionally offers to settle were either made on an open basis, and could be used against the offeror at trial and by the offeror on a costs argument, or were made on a without prejudice basis, and could not be relied on in Court at any time including in a costs argument.[18]

Calderbank v Calderbank[19] indirectly led to the widespread adoption of a hybrid formulation that has subsequently commonly been shortened to “without prejudice save as to costs” – commonly described as a “Calderbank offer”.

Application of Calderbank Offers 

It is now well established in Queensland Courts[20] and Federal Courts[21] that Calderbank offers may found a basis for departing from the general rule of costs following the event.

A refused and un-bettered Calderbank offer is only one factor (albeit usually a very strong one) to be taken into account in the exercise of a trial judge’s discretion as to costs.

Unreasonable Refusal

Unlike the position with Rules offers, to warrant a departure from the general rule of costs following the event, it is necessary for a Calderbank offer to have been unreasonably refused[22].

Professor Dal Pont stated that the recipient of an unbeaten Calderbank offer is under “at least a persuasive burden ... to show that its rejection of the offer was not unreasonable.”[23] In a very brief judgment, the High Court, in Stewart v Atco Controls Pty Ltd[24] said:

The non-acceptance of a Calderbank offer is a factor, in some cases a strong factor, to be taken into account on an application for indemnity costs. The respondent submits that its rejection of the offer was not unreasonable. If that be the test, it would appear to require at the least that the respondent point to a reason for not accepting the offer beyond the usual prospects of being successful in litigation.

In assessing whether an offer was unreasonably refused, and thus should lead to an indemnity costs order, a non-exhaustive list of the relevant factors was given by the Victorian Court of Appeal in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2)[25] being:

(a) the stage of the proceeding at which the offer was received;

(b) the time allowed to the offeree to consider the offer;

(c) the extent of the compromise offered;

(d) the offeree’s prospects of success, assessed as at the date of the offer;

(e) the clarity with which the terms of the offer were expressed;

(f) whether the offer foreshadowed an application for an indemnity costs in the event of the offeree’s rejecting it.

Availability of Rules Offer a Bar?

One issue that has occasionally been raised is whether offerors should be allowed to “do better” by making a Calderbank offer than they would have done had they made a Rules offer. This is most pointedly noticeable for defendants in Queensland who are ordinarily only entitled to standard costs for Rules offers. 

In Manwelland Pty Ltd v Dames & Moore Pty Ltd[26] Dutney J declined to make an order of indemnity costs against a plaintiff who declined an “all in” Calderbank offer of $60,000 and won at trial damages of $16,158.60. One factor that influenced His Honour was that had the offer been made under the Rules the usual position would be an order of standard (rather than indemnity) costs against the plaintiff. His Honour noting[27] “To reward the maker of an informal offer more highly would undermine this system.”

Such concerns clearly did not deter the Court in other cases such as Mansi v O'Connor and Ors[28].

Jones v Bradley (No 2)[29] the NSW Court of Appeal held:

The weight of authority does not support the proposition that evidence needs to be led to explain the choice of a Calderbank letter over that of the Offer of Compromise procedure provided for in the Rules of Court.

Nevertheless, while the offeror may be under no burden to explain the choice, the fact that the availability of Rules offers is still being commented on in judgments[30] shows that a choice of a Calderbank offer over a rules offer with no justification other than tactical advantage may impact negatively on the judge’s discretion to award indemnity costs.

Use of Offers in Appeals

Rules offers are open for use in appeals under the Federal Court Rules[31].

Rules offers are not open on appeals to the Queensland Court of Appeal[32]. Offers to compromise such an appeal may only have costs consequences if they are made as Calderbank offers.

The above considerations for Calderbank offers made at trial apply equally to offers made in an appeal.

Paragraph 52 of Supreme Court Practice Direction 3 of 2013 requires parties to an appeal who wish to make submissions seeking a special costs order to do so prior to or at the hearing of the appeal unless leave is granted. If leave is granted submissions must be made within 7 days of judgement unless otherwise ordered.

The Practice Direction has not been strictly enforced.

In Verhagen & Anor v Millard[33] the Court of Appeal received and agreed with submissions that an indemnity costs order be made notwithstanding that submissions were not made at the appeal nor leave sought. The Court simply noting that noncompliance with the Practice Direction did not disentitle the respondent to the sought order. In that case the successful respondent, who had made an offer that the appeal be discontinued with no order as to costs, was awarded its costs on an indemnity basis for the whole appeal. The Court in that case found that the lack of prospects of success in the appeal meant that the applicant’s refusal of the offer was unreasonable.

In Reeves v O'Riley [2013] QCA 285 the Court of Appeal refused to award indemnity costs despite an unbeaten Calderbank offer.

Recently in Comgroup Supplies Pty Ltd v Products For Industry Pty Ltd and Anor[34] the Court of Appeal granted leave to make costs submissions more than 7 days after the judgement and awarded the successful respondent, who had made an unbeaten offer, indemnity costs from the date of the offer. The Court there stated[35]:

Although appeal courts are reluctant to encourage these Calderbank approaches in appeals for fear that it might stultify the development of the law, the court concluded that an examination of the merits of the proposed amended notice of appeal showed that it was bound to fail and did not raise any significant questions of law but rather the application of well-established principles of law to the facts of the case.  

Relative Advantages of Rules offers v Calderbank Offers 

It can be seen from the above that for Queensland plaintiffs, Federal applicants and Federal respondents there is no advantage to making a Calderbank offer if the offer is capable of being made under the Rules. Indemnity costs are near automatic under the Rules and there is no requirement to show that the rejection of the offer was unreasonable.

The other thing that needs to be borne in mind is that offers purportedly made under the Rules but which actually do not comply with the Rules may be treated by Courts considering the question of costs as informal offers akin to Calderbank offers.

Calderbank offers are the only means of making an offer in an appeal.

For Queensland defendants, Calderbank offers hold the possibility of obtaining a better outcome than under the Rules although require the Court to be convinced that the offer was unreasonably refused. While it is not a requirement, defendant offerors will advance themselves if they can explain to the Court that the decision to make the offer other than under the Rules was motivated by more than sheer costs tactics (such as an offer that could not have been made under the Rules). 

In general, the main benefit of Calderbank offers over Rules offers is that the terms of the offer can be more creative and are not limited to terms capable of incorporation into a judgment. In Comgroup Supplies Pty Ltd v Products for Industry Pty Ltd & Anor (No 2)[36] the offer (that founded an indemnity costs order) was to pay the value of the claim by installments and required the offeree’s cooperation in the offeror attempting to recover the offered sum from a third party rogue. Neither of these terms could have been made as part of a Rules offer.

While it is apparent that the role of Calderbank offers has somewhat declined, they can not be lightly ignored or rejected and remain useful to litigants who:

  1. cannot leave an offer open for 14 days;
  2. wish to incorporate terms into an offer that are not capable of incorporation into a judgment; or
  3. are Queensland defendants or parties to a Queensland appeal.

 

Rob Ivessa

 

Footnotes


[1] as expressed in Rule 681 of the Uniform Civil Procedure Rules 1999 (UCPR) for Queensland Courts and in case law in Federal Courts such as and Tate v Rafin [2000] FCA 1582

[2] Rule 702 UCPR; Rule 40.01 Federal Court Rules 2011 (FCR) - referred to as party and party costs

[3] in Queensland Courts under Chapter 9 Part 5 of the UCPR and in the Federal Court under Part 23 of the FCR

[4] Rules 360 and 361 UCPR; Rule 25.14 FCR

[5] [1975] 3 All ER 333 (EWCA)

[6] Rule 353 UCPR; in the Federal Courts pursuant to Rule 25.01 offers must be made on a Form 45

[7] Rule 355 UPCR; Rule 25.05 FCR

[8] Rule 358(4); Comgroup Supplies Pty Ltd v Products For Industry Pty Ltd & Anor (No 2) [2015] QDC 15 at [11] Per DCJ McGill

[9] Rule 355 UCPR; Rule 25.07 FCR

[10] Rule 358 UCPR; Rule 25.08 FCR

[11] and applicant offerors in the Federal Courts, hereafter referred to for simplicity as plaintiff offerors

[12] Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd [2009] FCAFC 40

[13] Rule 25.14

[14] ie if they are wholly successful an award of part and party costs in their favour and if they lost then party and party costs against them

[15] Rule 361 (unlike Rule 360) specifically allows the offeror to show the Court that another order is appropriate.

[16] Shaw v Jarldorn (1999) 76 SASR 28 at 34

[17] Examples are Tickell v Trifleska Pty Ltd (1990) 25 NSWLR 353 at 355 a case of a plaintiff offering to accept only a nominal reduction on the amount claimed and ACCC v Universal Music Australia Pty Ltd (No 2) (2002) 201 ALR 618 at [59] in the case of a defendant offering to accept discontinuance with each party to bear own costs. However, offers of compromise have been found in to have involved a real element of compromise in the following situations:  A discount of less than 5% on the verdict sought in Amaca Pty Ltd v Hicks (No 2) [2011] NSWCA 360; and  A ‘walk away’ offer (parties seek to forgo costs) by the defendant in Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd [2011] FCAFC 53

[18] Walker v Wilsher (1889) LR 23 QBD 335

[19] [1975] 3 All ER 333 (EWCA)

[20] Habig v McCray [2014] QSC 69 at [21]

[21] WSA Online Ltd v Arms (No 2) [2006] FCAFC 108 at [16]

[22] J & D Rigging Pty Ltd v Agripower Australia Ltd (No 2) [2014] QCA 23 at [5]; That question is determined by reference to the situation of the offeree at the time.

[23] Dal Pont, Law of Costs (LexisNexis Butterworths, 2nd Ed, 2009 at 401

[24] (2014) 252 CLR 331

[25] (2005) 13 VR 435 at [25] cited with approval in Hadgelias Holdings Pty Ltd v Seirlis [2014] QCA 325

[26] [2000] QSC 432 

[27] at [14]

[28] [2012] QSC 374

[29] [2003] NSWCA 258 at [12]

[30] Such as Morris v McEwen (2005) 92 SASR 281 at 283-284 and Comgroup Supplies Pty Ltd v Products For Industry Pty Ltd & Anor (No 2) [2015] QDC 15 at [11]

[31] Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd [2009] FCAFC 40 at [9]; IFTC Broking Services Ltd v Commissioner of Taxation (2010) 268 ALR 1 - these cases were determined under the old rules but likely apply equally to the current FCR.

[32] Verhagen & Anor v Millard [2013] QCA 202 at [3]

[33] [2013] QCA 202

[34] [2016] QCA 130

[35] At [8]

[36] [2015] QDC 15 at [11]


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