Aldag v Eistis

On 25 June 2008 the solicitors for the respondent sent a Calderbank letter (Calderbank v Calderbank [1975] 3 All ER 333) drawing attention to the Court of Appeal's decision in Lemoto, setting out a detailed analysis of the facts and offering to settle the matter on a "walk-away basis" with each party paying his own costs, such offer to be open for seven days.

The court can treat a Calderbank offer as grounds for an order for costs on an indemnity basis (Jones v Bradley (No 2) [2003] NSWCA 258) but such an offer will not justify an indemnity costs order unless its rejection was unreasonable: Jones v Bradley (No 2) at [13]; SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37]; Nobrega v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (No 2) [1999] NSWCA 133; LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd [2003] NSWCA 74; Skalkos v Assaf (No 2) [2002] NSWCA 236; Leichhardt Municipal Council v Green [2004] NSWCA 341 at [46]-[47]; South Eastern Sydney Area Service v King [2006] NSWCA 2 at [90]; Russell v Edwards (No 2) [2006] NSWCA 52 at [6]-[7]; Peter Willis v Health Communications Network Ltd (No. 2) [2008] NSWCA 2 at [20]. In Leichhardt Municipal Council v Green, where the offer was made by a successful defendant, the Court of Appeal at [46]-[47] emphasises the width of the discretion and the special nature of an order for indemnity costs.

What is an unreasonable rejection of a Calderbank offer? That tends to turn on the facts of each case. In the present case, the applicant submits that the offer, being of the "walk-away" kind, was not a proper Calderbank offer but an offer demanding the capitulation of the applicant and thus not a compromise: Tickell v Trifleska Pty Ltd (1990) 25 NSWLR 353 at 355. The question of what amounts to a genuine compromise was considered recently by the Court of Appeal in Uniting Church in Australia Property Trust (NSW) t/as Northaven Retirement Village v Takacs (No 2) [2008] NSWCA 172. The court noted (having regard to the matters raised by Hodgson JA in Commonwealth of Australia v Gretton [2008] NSWCA 117 at [113]) that there may well be cases where a defendant offering to settle a claim for an amount which would reflect unrecoverable costs which would be bona fide, there still needs to be an element of compromise. A Calderbank offer in these proceedings which offered to make a contribution towards the applicant's costs may well have resulted in a settlement. The defendant had made some offers in the litigation which involved payment of modest sums, and may have responded favourably to a similar offer.

Another issue for consideration is the timing of the offer and the length of time that the offer remained open. The offer was made shortly before the application was to be heard, by which time substantial costs had been incurred on both sides. The applicant was already facing the prospect of not being able to recover legal costs for the trial in which he was successful. However, it must also be said that at the time the offer was made the applicant had before him all the necessary information upon which to make a decision, so the timing of the offer was reasonable.

However, the offer was only open for seven days. In Seary v White (No 5 - Costs) [2008] NSWDC 21 a party made an offer of compromise on the second day of the trial which remained open for only three days. The court considered sufficient time as a counter-offer was made during this period, and the parties represented by senior counsel. However, this was an offer of compromise; the reasonableness of a Calderbank offer includes the period of time allowed for acceptance: Ng v Chong [2005] NSWSC 385 at [13] - [15]. There is much to be said for giving a person who has been locked in litigation for a long period of time, particularly someone who is an uninsured defendant, time to consider his position. Seven days is a short period in the circumstances of this case.

The offer to walk-away on an each pay own costs basis was not a compromise, nor was it unreasonable to reject it in the circumstances of this case.

Accordingly, while the applicant should pay the respondent's costs of the motion, those costs should not be payable on an indemnity basis.

1. Amend order 3 of the judgment of 7 August 2008 to order the applicant to pay the respondent's costs of the Notice of Motion.
2. Respondent's application for costs to be paid on an indemnity basis refused.

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