The defendant's application as to costs
2 The defendant seeks an order that the plaintiff pay its costs as from the date upon which a Calderbank style offer was made, namely 1 June 2006. The defendant seeks an order for payment of its costs from the date of that offer as on an indemnity basis. That application is opposed by the plaintiff, who submits that costs should follow the event pursuant to Pt 42 r 42.1 of the Uniform Civil Procedure Rules.
3 On 3 February 2006 the plaintiff's solicitor conveyed to the defendant's solicitor an offer of compromise pursuant to Pt 20 r 20.26 of the UCP Rules. The plaintiff offered to settle by that notice for the sum of $250,000 plus costs. The defendant's response was not conveyed pursuant to the above rule but rather by way of a Calderbank letter dated 1 June 2006, which letter was in the terms following:
"1. We advise that the defendant is prepared to resolve this matter with the plaintiff upon the following basis:
a) the defendant to make payment to the plaintiff of the sum of $150,000.00, from which sum are to be deducted all statutory repayments pursuant to the provisions of the Commonwealth Health and Other Services (Compensation) Act 1995, the Commonwealth Health and Other Services (Compensation) Care Charges Act 1995, the Commonwealth Social Security Act 1947 (as amended), the Commonwealth Social Security Act 1991 (as amended), the Safety Rehabilitation and Compensation Act 1988 and the Commonwealth Veterans' Entitlement Act 1986;
b) the defendant to pay the plaintiff's party-party costs, to be agreed or assessed, save for any costs orders made in favour of the dependent [sic], including the costs of the extension of time application;
c) the Terms of Settlement to remain confidential as between the parties and their legal advisors save as required by law or to satisfy a request of the Australian Parliament, or an Australian Government Minister, or an Australian Government Parliamentary Committee; and
d) the defendant to have 28 days from the entry of judgment for payment of the settlement sum.
2. Please note that this offer is made in accordance with the principles enunciated in the matter of Calderbank v Calderbank [1976] Fam 93 and the defendant reserves the right to rely upon this letter as to the question of costs if the plaintiff fails to obtain a verdict in excess of the sum referred to at paragraph 2(a) above or to seek an order for indemnity costs if appropriate.
3. This offer is open for acceptance until 4.00 pm, 30 June 2006 ."
4 It is to be observed that whilst the defendant did not make its offer pursuant to the rules, it did convey an offer that was open for acceptance for an effective period of no less than twenty-eight days.
5 The jury awarded the plaintiff damages in the sum of $50,000. When interest was added, I directed the entry of judgment for the plaintiff on 20 December last in the sum of $77,600. Hence, the plaintiff recovered substantially less than the amount he was offered by the defendant.
6 Under Pt 42 r 42.1 "the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs". Should the Court make the order sought by the defendant having regard to its Calderbank offer?
7 Where an offer of compromise is made under r 20.26, it is not accepted, and the plaintiff recovers less, then Pt 42 r 42.15 applies, and relevantly:
"(2) Unless the court orders otherwise:
(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 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."
8 So it is that where the offer not accepted is an offer made under r 20.26, the defendant in the circumstances here contemplated has an entitlement to a costs order on an indemnity basis "unless the court orders otherwise".
9 Prima facie then, where r 42.15 applies, the defendant is to have the benefit of the rule and it will be for the plaintiff to prove that the court should otherwise order.
10 Having considered the authorities in point, it does not seem to me that there is such a prima facie entitlement if the rejected offer was a Calderbank offer.
11 In Multicon Engineering Pty Limited v Federal Airports Corporation (1996) 138 ALR 425 Rolfe J concluded that there was a prima facie presumption that an order for indemnity costs should be made if an offer of settlement was made, rejected and not bettered in litigation. His Honour said (at 451):
"In my opinion the proper approach to take to an Offer of Compromise, whether made under the Rules or pursuant to a Calderbank letter, is that there should be a prima facie presumption in the event of the offer not being accepted and in the event of the recipient of the offer not receiving a result more favourable than the offer, that the party rejecting the offer should pay the costs of the other party on an indemnity basis from the date of the making of the offer. I proceed on the basis that the unreasonableness was the failure by the offeree to accept the offer, which unreasonableness is demonstrated, prima facie, by the ultimate result. This approach is consistent with the decisions to which I have referred, the policy evidenced by the Act and the Rules and the widely accepted philosophy that settlements should be encouraged. The relevant Rules provide that costs will be paid on the basis set out therein "unless the Court otherwise orders". My understanding is that the Court is required to proceed on the basis that it should make the order provided for by the Rules, unless the party rejecting the offer is able to establish good reason for having done so."
12 Lindgren J took a different view in MGICA (1992) Pty Limited v Kenny & Good Pty Limited & Anor (1996) 70 FCR 236 when he was considering the effect of a Calderbank offer. Having referred to the decision of Rolfe J in Multicon, his Honour, having earlier considered the decisions of Sheppard J in Colgate Palmolive Pty Limited v Cussons Pty Limited (1993) 46 FCR 225 and of Hill J in John S. Hayes & Associates Pty Limited v Kimberly-Clark Australia Pty Limited (1994) 52 FCR 201, determined he should follow those two earlier judgments of the Federal Court. His Honour said (at 240):
"Order 23 establishes a regime which, if utilised, gives rise to a presumptive entitlement to indemnity costs. Notwithstanding the policy of encouraging settlement of litigation, it should not be assumed that the mere writing of a Calderbank letter generates the same presumptive entitlement to indemnity costs that is provided for in O 23."
13 In SMEC Testing Services Pty Limited v Campbelltown City Council [2000] NSWCA 323, Giles JA considered the effect of the Calderbank offer (at [37]):
"The making of an offer of compromise in the form of a Calderbank Letter…where the offeree does not accept the offer but ends up worse off than if the offer had been accepted, is a matter to which the court may have regard when deciding whether to otherwise order, but it does not automatically bring a different order as to costs. All the circumstances must be considered, and while the policy informing the regard had to a Calderbank letter is promotion of settlement of disputes an offeree can reasonably fail to accept an offer without suffering in costs. In the end the question is whether the offeree's failure to accept the offer, in all the circumstances, warrants departure from the ordinary rule as to costs, and that the offeree ends up worse off than if the offer had been accepted does not of itself warrant departure."
14 The different lines of authority reflected by the judgments to which I have just referred were addressed by the Court of Appeal in Jones v Bradley (No. 2) [2003] NSWCA 258. In the joint judgment of the court in Jones v Bradley, Meagher JA, and Beazley and Santow JJA, having referred to Multicon and MGICA, considered also SMEC, citing the passage from the judgment of Giles JA set out above. Their Honours proceeded:
"It appears that Priestley JA, by his Orders in this case, would endorse this approval. But in any event, the principle has been applied in the Supreme Court both at first instance and on appeal: see Enron Australia Finance Pty Limited (in liquidation) v Integral Energy Australia [2002] NSWSC 819; Nobrega v The 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; and Cummings v Sands [2001] NSWSC 706.
9 It is worth pausing to note that the difference between the two lines of authority may be " more apparent than real" as in either approach the Court must consider all the circumstances of the case: see CBA Investments Limited v Northern Star Limited (No 2) [2002] NSWCA 164. Be that as it may, we consider that the approach taken by the Court in SMEC Testing Services is correct and is the approach which should be consistently applied when dealing with Calderbank offers."
15 Following Jones v Bradley it seems to me that there is no prima facie entitlement to the order sought by the defendant such as there would be had the provisions of the rules been invoked. Indeed, in Leichhardt Municipal Council v Green [2004] NSWCA 341 Santow JA said as to this:
"There are some distinctions between the two procedures in their attendant costs consequences [his Honour was here referring to the relevant cost rule and a Calderbank letter]. A key difference is that where an offer of compromise has been made under the Rules, a prima facie entitlement arises in the relevant party to have costs awarded in accordance with the appropriate rule. This entitlement, though subject to the court's discretion to prevent substantial injustice in exceptional cases, will rarely be interfered with… By contrast, the costs consequences attendant under general law upon an offer of compromise made in a Calderbank letter lie within the discretion of the court, to be exercised having regard to all the relevant circumstances of the case."
16 It is for the defendant to persuade the Court that the plaintiff acted unreasonably in rejecting its offer. It seems to me that more is required to prove the plaintiff was unreasonable than to prove that the offer which was not accepted was a reasonable offer. In a particular case a plaintiff might act reasonably in rejecting an offer which was within the possible verdict range.
17 What emerges from SMEC and from Jones v Bradley and from Leichhardt Municipal Council v Green is that all the relevant circumstances have to be considered in determining whether the plaintiff's rejection of the settlement offer was unreasonable. Rejection would be unreasonable if it occurred without any consideration or without due consideration of the offer made. Rejection of an offer would be unreasonable if the plaintiff could not reasonably hope to match the offer by proceeding to a hearing. Rejection of an offer would be unreasonable if it involved a disregard of serious problems confronting the plaintiff in establishing liability. However, none of the decisions to which I have referred has sought to define what amounts to unreasonable rejection. I instance the above circumstances as examples of situations in which an offeree would act unreasonably in not accepting an offer, but it has to be recognised that there can be no all embracing definition as to what amounts to unreasonable conduct in failing to accept an offer. All the relevant circumstances of the particular case have to be considered.
18 Mr Jones submitted that the failure of the plaintiff to accept the defendant's offer in this case was unreasonable having regard to the following: