On 3 August 2018 I gave judgment in favour of Allfab Constructions Pty Limited in cross-claims by the first, second and fourth cross‑claimants (together "West Cliff"), dismissing the cross-claims and ordering West Cliff to pay Allfab's costs. [1]
Allfab has applied for an order that those costs be paid on an indemnity basis from 22 December 2017, or alternatively, from 13 March 2018, on the basis of a Calderbank offer made on 21 December 2017 and renewed on 12 March 2018.
[2]
B. The first offer
The offer of 21 December 2017 was in the following terms:
"1 We refer to the above proceedings.
2 It is our view that the opinion of Mr Williams expressed in his report dated 6 December 2017 is unfounded, and the assumptions upon which it is based cannot be proven by admissible evidence.
3 Our client's position is that it complied with the cross‑claimants' isolation procedures and that the root cause of the incident was the cross‑claimants' failure to remove the work order for the inspection of tank TK3‑20 from the job pack provided to our client. A contributory cause was the cross‑claimants' isolation procedures which were clearly inadequate in light of the fact that the cross‑claimants' isolation coordinator confirmed that TK3‑20 was safe to inspect when plainly it was not.
4 In addition, our client strenuously refutes the proposition that it employed 'crack the hatch' methodology to determine whether the tank was full or empty. The cross‑defendant's fitter cautiously and appropriately created a small opening in the hatch to allow any residual product, that may have remained after the tank had been emptied, to escape prior to opening the hatch fully.
5 Before this matter goes any further and our client is forced to incur unnecessary costs preparing the matter for hearing, we are instructed that it is prepared to settle your clients' cross claims on terms that there be a judgment in its favour with each party to pay their own costs. This offer is open for acceptance from 28 days from the date of this letter.
6 This offer is made pursuant to the principles in Calderbank v Calderbank [1975] 3 All ER 333 and, in the event it is not accepted, our client will rely on this offer in an application for indemnity costs.
Yours faithfully". [2]
The offer was marked "Without prejudice save as to costs".
West Cliff did not accept the offer but responded on the following day in these terms:
"1. We refer to our clients' cross claim.
2. We enclose, by way of service, an Offer to Contribute on the terms that your client pay 50% of any settlement or judgment in favour of the plaintiff.
3. Should the offer in any way be found to be not in accordance with the Uniform Civil Procedure Rules you should consider this letter to be a 'Calderbank letter'. That is, we rely on the principles espoused in Calderbank's case as approved by the New South Wales Supreme Court in Messiter v Hutchinson in seeking special orders in relation to costs.
4. This offer is open for a period of 28 days after the date of this letter.
Yours sincerely". [3]
The counter offer by West Cliff must be taken to be a rejection of Allfab's offer.
As Allfab's offer proposed a settlement relieving West Cliff of any obligation to pay Allfab's costs, it was more favourable to West Cliff than the terms of the ultimate judgment. However, the parties accepted that Allfab needed to prove both that its offer was a genuine offer of compromise and that the rejection of the offer by West Cliff was unreasonable in order for Allfab to establish an entitlement to indemnity costs.
[3]
(a) Genuine offer of compromise
No issue was taken about whether the offer was capable of immediate acceptance, whether it was open for a reasonable period of time, or whether it possessed the features of a Calderbank offer such as referring to the Calderbank decision and indicating that it would, if not accepted, be relied upon to seek indemnity costs. Nor was it disputed that a walk away offer could constitute a genuine offer of compromise. [4]
The real dispute was whether in the circumstances of this case the offer was a genuine offer of compromise. Allfab submitted that at the time the offer was made, it had incurred "approximately $25,000 in costs". [5] In fact, the evidence was, "As at the expiration of Allfab's Calderbank offer dated 21 December 2017, it had incurred costs and disbursements totalling about $22,530 excluding GST". [6] The meaning of this assertion is unclear. 21 December 2017 was the day the offer was made, but its expiration date was about 18 January 2018. I think the reference to the date is an identification of the offer, rather than an incorrect date of expiration, and in that circumstance, the evidence should be read as indicating that as at about 18 January 2018, $22,530 in costs had been incurred by Allfab.
Allfab also relied on other circumstances as evidence of a genuine offer: the trial date had been set for 5 March 2018, less than four months away; the costs incurred were a significant component of the ultimate amount of costs incurred by Allfab, some $129,317 exclusive of GST prior to this application being heard; and the reasons given by Allfab in the Calderbank letter.
West Cliff submitted that the offer was not a genuine attempt to compromise the dispute. It referred to the brevity of the reasoning in the Calderbank letter; that no reference was made to documents of importance to Allfab's defence; that only a defence had been filed by the time of the offer; that the sum of the offer was insignificant; and the principle that a walk away offer of compromise made early in the litigation is not a genuine offer. [7]
I am satisfied that the Calderbank letter did fairly set out reasons, even if only briefly and without reference to documents, as to why the proceedings by West Cliff would likely fail, and that those reasons bear some resemblance to the reasons ultimately found in the judgment. The details of the letter can be contrasted with the absence of any reasons in West Cliff's counter offer, although the focus in this inquiry must be upon Allfab's offer and not West Cliff's counter offer.
The offer, whilst not substantial, was nevertheless an offer of significance because of the costs incurred to that stage. It may be, but was not, argued that as the offer was less than 20% of the total costs ultimately incurred, it was perhaps a lesser amount than the unrecoverable costs of Allfab in the proceedings. But I do not think this is conclusive. There is no principle that a walk away offer is insufficient to constitute a genuine offer if the costs then expended do not exceed the unrecoverable costs to be incurred in the whole proceedings. The costs, recoverable or otherwise, are not to be known at the time of the offer.
In the circumstances, the offer, accompanied by reasons, open for a reasonable time, capable of immediate acceptance, involving the giving away of a significant sum in costs was, in my view, a genuine offer to compromise the proceedings.
[4]
(b) Unreasonably rejected
Allfab's entitlement to indemnity costs requires proof of unreasonable conduct by West Cliff.
Allfab submitted that the offer was unreasonably rejected because it was peremptorily [8] rejected the next day, not even acknowledged, with no reasons for the rejection being provided. Allfab also relied upon the circumstances that part of its reasons for the offer relied upon the inadmissibility of West Cliff's expert report, which it submitted did not cause West Cliff to take any steps to render the report admissible and which was subsequently rejected at the trial, [9] which was said to manifest an unwillingness in West Cliff to engage on the subject of settlement.
West Cliff submitted that the reasonableness of its conduct should not be viewed in hindsight. [10] At the time of the offer, it did not have all the documents it sought. Reliance was placed by West Cliff on the factors referred to in the decision of the Victorian Court of Appeal in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) as follows:
"(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." [11]
I considered these factors, but the only one that may significantly favour West Cliff is the reference to the prospects of success being assessed at the date of the offer.
Allfab responded by submitting that no extension of time was sought to enable West Cliff to consider the documents prior to responding to the offer and also that West Cliff did not identify any relevant document that came to their attention after the date of the offer.
Whilst the conduct of West Cliff may be close to the line, I am of the view that Allfab has not established that the rejection of the offer was unreasonable. It is not to be established merely by showing that the offer was more favourable than the result. Whilst West Cliff lost in the proceedings, I do not think that this was a case where the cross‑claims were plainly without any merit.
There were arguments and evidence which were called in aid to support the claims, and since little was to be gained by West Cliff accepting the offer in the terms that it was made, at a time when the case was not fully prepared, I am not satisfied that there was unreasonableness in the rejection by West Cliff.
The absence of any reason for the rejection of the offer, or that it occurred within a day of the offer, is not of itself sufficient to persuade me of a failure to consider the offer, a matter which may have been a weighty factor had it been established. This case may manifest a distinction between an offer of compromise under the rules and a Calderbank offer. Had an offer of compromise under the rules been made in the same terms, the application would have been much stronger because of the presumption in favour of the offeror that operates in such a case, once proof of an offer no less favourable than the judgment is established.
Accordingly, I do not propose to make an order for indemnity costs in accordance with Pt 42 of the Uniform Civil Procedure Rules 2005 from the day following the date of the 21 December offer to the 12 March 2018 offer.
[5]
C. The second offer
The offer of 12 March 2018 was in the following terms:
"Without prejudice save as to costs
…
1 We refer to the above proceedings.
2 We are instructed to re-open our client's offer made on 21 December 2017 that there be judgment in its favour (or a Deed of Release and notice of discontinuance) with each party to pay their own costs of the costs claims. This offer is conditional upon the plaintiff agreeing to discontinue the proceedings against our client with each party to pay their own costs of the proceedings.
3 This offer is open for acceptance until 5pm today.
4 This offer is made pursuant to the principles in Calderbank v Calderbank [1975] 3 All ER 333 and, in the event it is not accepted, our client will rely on this letter in an application for indemnity costs.
Yours faithfully". [12]
The strength of this offer to support an indemnity costs order was not forcefully pressed by Allfab.
Although the offer was only open for some hours, it was made on the day before the hearing which commenced on 13 March 2018, so I would not regard the short period of time in that context, without more, as an unreasonably short period. The assertion that the parties were in negotiations on that day was not disputed.
The other difficulty with the offer, of more significance, is that at the time of the offer, Allfab was a defendant as well as a cross‑defendant. The offer imposed a condition that another party, the plaintiff, agree to discontinue the proceedings against Allfab, and also proposed the alternative of a deed of release and a notice of discontinuance.
The alternative proposed was uncertain in meaning because the terms of the deed of release were not specified. The proposal was in the nature of an agreement to agree as Allfab frankly acknowledged. But the offer proposed in its first alternative, a judgment in its favour, was a proposal that was capable of immediate acceptance.
The condition of discontinuance by the plaintiff is more problematic. This would require further negotiations and so any purported acceptance of the offer by West Cliff would not immediately bind the parties to a settlement agreement. In those circumstances, it seems to me that it was reasonable for West Cliff not to accept the offer. The circumstance that the plaintiff agreed to discontinue the proceedings against Allfab on the following day does not establish that this condition was insignificant at the time of the offer.
Accordingly, I am not persuaded that either offer, in the circumstances of this case, creates an entitlement in Allfab to indemnity costs.
[6]
D. Costs
Allfab submitted that the costs of the proceedings, the subject of the existing order in respect of costs, should extend to the costs of this application so that effectively Allfab would be entitled to its costs of the application. West Cliff sought its costs of the application in the event that it was successful.
Questions may arise as to whether the whole of the proceedings, or the application only, constitute the event described in UCPR r 42.1, which provides a general rule that costs follow the event. The circumstance that this application was dealt with on a separate day may have some significance in that regard. Costs in interlocutory applications are to be costs in the cause [13] unless some other order is made. But this application is not merely interlocutory, but for a form of final relief. I also take into account that Allfab has succeeded in establishing that it made a genuine offer of compromise, one of the two principal issues in the application.
Bearing all these matters in mind, that the application is part of the proceedings, that Allfab has an order in its favour in respect of the costs of the proceedings, but that West Cliff has ultimately had success on this application, in my view, the appropriate order is that there be no order as to the costs of the application to the intent that each party bear their own costs.
[7]
E. Orders
The orders of the Court are therefore:
1. Allfab Constructions Pty Limited's application dismissed.
2. No order as to the costs of the application.
[8]
Endnotes
Leslie Corbett v South 32 Limited (No 2) [2018] NSWDC 232.
Affidavit of Anna Williams, 15/8/18, pp 12-13.
Affidavit of Anna Williams, 15/8/18, p 15.
Leichardt Municipal Council v Green [2004] NSWCA 341 at [36], Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd [2011] FCAFC 53 at [139]-[141], Brookfield Multiplex Ltd v International Litigation Funding Partners Pte Ltd (No 4) [2009] FCA 803 at [13], Szencorp Pty Ltd v Clean Energy Council Limited (No 2) [2009] FCA 196 at [15], Alexander v Australian Community Pharmacy Authority (No 3) [2010] FCA 506 at [31].
Fourth defendant's outline of submissions on costs, 16/11/18 at [21].
Affidavit of Anna Williams, 15/8/18 at [15].
Taheri v Vitek (No 2) [2014] NSWCA 344 at [9]-[10].
Leichardt Municipal Council at [57].
Leslie Corbett v South 32 Limited [2018] NSWDC 179.
See Noon & Anor v Bondi Beach Astra Retirement Village Pty Ltd & Anor (No 2) [2010] NSWCA 285 at [11].
[2005] VSCA 298 at [25].
Affidavit of Anna Williams, 15/8/18, p 23.
UCPR r 42.7.
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 14 December 2018