What happened
Miwa Pty Ltd was the lessee of commercial premises in Sydney owned by Siantan Properties Pte Ltd. The original lease contained a clause providing a $45,000 fitout contribution from the lessor and required the lessee to furnish a bank guarantee in the same sum. When the lessee exercised an option to renew on the same terms a dispute arose as to whether a further fitout payment was required. The lessee deducted the sum from rent payments. After the renewed lease expired in 2009 the lessor sought to call upon the bank guarantee. Miwa commenced proceedings in the Equity Division on 6 May 2010 seeking declaratory relief and an injunction to prevent the call on the guarantee, contending it had no outstanding liability.
On 17 September 2010, six clear working days before the trial listed for 29 September 2010, Miwa sent a Calderbank letter offering to settle the entire proceedings on the basis that Siantan pay it $1,000 “in full and final settlement” and deliver up the bank guarantee. The letter was expressed to be without prejudice save as to costs and invoked Calderbank v Calderbank [1976] Fam 93, signalling an intention to seek indemnity costs if the offer were not accepted and Miwa succeeded. No offer was made under UCPR r 20.26. The letter did not stipulate how long it remained open and made no express reference to costs, although Basten JA later inferred that each party would bear its own costs up to that date.
Windeyer AJ dismissed Miwa’s claim on 21 October 2010. Miwa appealed. On 16 June 2011 the Court of Appeal (McColl, Basten and Campbell JJA) allowed the appeal, set aside the orders below and ordered Siantan to deliver up the bank guarantee. Costs were ordered on the ordinary basis in both courts: Miwa Pty Ltd v Siantan Properties Pte Ltd [2011] NSWCA 297. Miwa then filed a notice of motion on 22 September 2011 seeking to vary the costs orders so that it received indemnity costs from 17 September 2010 in both the Equity Division and the Court of Appeal. The motion was heard on the papers. McColl JA and Campbell JA agreed with Basten JA, who delivered the principal judgment.
Basten JA analysed the offer under the two-stage test commonly applied to Calderbank letters: whether it was a genuine offer of compromise and whether it was unreasonable for Siantan to reject it. His Honour accepted that the implied costs waiver gave the offer some financial substance but characterised the $1,000 component as nominal. Because Siantan had succeeded at trial on issues of “some legal complexity” its prospects could not be described as slight. Refusal was therefore not unreasonable. In relation to the appeal costs, Basten JA emphasised that an unrenewed pre-trial offer made for a limited time could not readily be treated as encompassing the possibility of an appeal. To treat such offers as routinely “relevant” would encourage futile satellite litigation. The motion was dismissed and Miwa ordered to pay Siantan’s costs of the motion.
Why the court decided this way
The court’s reasoning is grounded in the interaction between the statutory costs discretion (Civil Procedure Act 2005 (NSW) s 98 and UCPR rr 42.1, 42.2) and the policy objectives of settlement offers. Basten JA began by recalling the three objects identified in Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724: encouraging realistic early offers, saving public and private costs, and indemnifying a party who has made a reasonable offer that is rejected. These objects apply to informal offers as well as those made under the rules (Grbavac v Hart [1997] 1 VR 154).
The first limb—whether the offer was genuine—required the court to ask whether Miwa had given something away. Drawing on Giles J in Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358 at 368, Basten JA noted that an offer of only a dollar by a plaintiff with a strong case does not constitute real compromise. Here the $1,000 sum was nominal relative to the binary $45,000 dispute, but the implied relinquishment of Miwa’s accrued costs gave the offer some value. Nevertheless the court did not need to decide the point definitively because the second limb was decisive.
On unreasonableness the court applied the non-exhaustive list from Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298 at [25]: stage of proceedings, time allowed, extent of compromise, prospects of success, clarity of terms, and whether indemnity costs were foreshadowed. The offer was made at a late stage but both parties were fully conversant with the merits; the time allowed (six working days) was adequate; the terms were clear; and indemnity costs were expressly foreshadowed. The decisive factors were the extent of compromise and Siantan’s prospects. Because Siantan had succeeded before Windeyer AJ on points of legal complexity its prospects at the date of the offer could not be characterised as poor. Basten JA expressly rejected any hindsight use of the ultimate appellate outcome.
A separate and independent reason concerned the appeal costs. The court surveyed earlier authorities (Ettingshausen v Australian Consolidated Press Ltd (1995) 38 NSWLR 404, Brymount Pty Ltd v Cummins (No 2) [2005] NSWCA 69, Stuart Pty Ltd v Condor Commercial Insulation Pty Ltd (No 2) [2006] NSWCA 379) and noted that no case had been cited in which an unrenewed pre-trial Calderbank offer had successfully grounded indemnity costs on appeal after the offeror had lost at trial. Three practical reasons were given: (1) trial success is itself a significant event that would justify rejection of any renewed offer; (2) the offeror’s failure to renew prevents that hypothesis being tested; and (3) an offer to settle “the proceedings” can reasonably be read as referring only to the proceedings then on foot. Basten JA added a policy consideration at [23]: treating pre-trial offers as generally relevant to appeal costs encourages futile applications and should be discouraged. Different considerations might apply to offers made under the rules because they relate to “claims” that remain on foot until final determination.
The onus lay on Miwa as the offeror to persuade the court that departure from the ordinary basis was warranted (Black v Lipovac [1998] FCA 699). It failed to discharge that onus on either limb.
Before and after state of the law
Prior to this decision the law on Calderbank offers was already well developed. Cutts v Head [1984] Ch 290 had established the “without prejudice save as to costs” exception. Messiter v Hutchinson (1987) 10 NSWLR 525 and SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 confirmed that the practice applied in New South Wales even without a payment-into-court regime. Maitland Hospital v Fisher (No 2) supplied the canonical statement of purpose. The two-stage test (genuine offer and unreasonable refusal) had been articulated in Leichhardt Municipal Council v Green [2004] NSWCA 341 and Jones v Bradley (No 2) [2003] NSWCA 258. Hazeldene’s Chicken Farm provided the checklist of relevant factors that Basten JA expressly adopted.
What Miwa (No 2) clarified was the weight to be given to unrenewed pre-trial offers on the costs of a subsequent appeal. Earlier cases such as Trustee for Salvation Army (NSW) Property Trust v Becker (No 2) [2007] NSWCA 194 and Grace v Thomas Street Cafe Pty Ltd (No 2) [2008] NSWCA 72 had left the point somewhat ambiguous. The present judgment firmly states that such offers will “rarely carry significant weight” and that describing them as generally “relevant” is apt to encourage futile applications. The decision also reinforces that a nominal monetary offer coupled with a costs waiver is not automatically decisive; the offeree’s reasonable prospects remain central.
After the decision the law has been applied consistently. Later courts have cited Miwa (No 2) for the proposition that an offeror must still satisfy the court that refusal was unreasonable even where the offer involves a costs waiver (Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2008] NSWCA 85 was distinguished because it concerned a rule-compliant offer). The policy warning against routine reliance on stale pre-trial offers has been repeated in subsequent appeal-costs disputes. The case has not been overruled and remains authoritative on both the trial-costs and appeal-costs limbs.
Key passages with plain-English translation
Paragraph [8] contains Basten JA’s adoption of Giles J’s observation from Hobartville Stud: “Compromise connotes that a party gives something away.” In plain English the court is saying that an offer which is little more than a demand for capitulation does not engage the special costs consequences. A plaintiff who believes it has a strong case cannot buy indemnity costs by offering a token dollar.
At [12] the court sets out the Hazeldene’s checklist. Translated, this means that when deciding whether someone was unreasonable to reject an offer the judge looks at how far the case had progressed, how much time they were given, how big the discount was, what their chances looked like at the time, whether the offer was clear, and whether it warned about indemnity costs. No single factor is decisive.
Paragraph [19] is the heart of the trial-costs reasoning: “given the nominal payment proffered, the offer involved capitulation by the respondent, without the obligation to pay the costs of the proceedings to that point. It would have been unreasonable to refuse such an offer if its prospects of success in defending the proceedings were slight. However, they could not be so described.” In everyday language the court is saying the landlord was being asked to give up almost entirely, yet it had already won at trial on decent legal arguments. Therefore it was entitled to fight on.
The policy statement at [23] is perhaps the most cited: “To continue to refer to a pre-trial offer as generally ‘relevant’ to the exercise of discretion in respect of the costs of the appeal is apt to encourage futile applications.” Plain English version: if we keep telling litigants that old settlement letters can automatically affect appeal costs, we will be flooded with pointless arguments that waste everyone’s time and money. The court is trying to shut down satellite litigation.
Finally, [17] explains why the offer was not made under the rules: “the reason why the offer was not made under the rules was presumably because such an offer could not include the costs of the proceedings.” This highlights the strategic difference between rule-compliant offers (which cannot include costs) and Calderbank letters (which can be drafted to encompass costs waivers).
What fact patterns trigger this precedent
Miwa (No 2) is triggered whenever a party relies on a pre-trial Calderbank letter to seek indemnity costs after succeeding on appeal. Typical triggers include:
- The offer is made shortly before trial (here six working days) and is not renewed after an adverse first-instance judgment.
- The offer contains a nominal monetary component coupled with an implied or express costs waiver.
- The offeree enjoyed reasonable prospects of success at the date of the offer, often demonstrated by an initial victory at trial on questions of legal complexity rather than pure fact.
- The ultimate appellant seeks indemnity costs for both the trial and the appeal but cannot point to any post-trial without-prejudice communications.
- The dispute is binary (liability yes/no) rather than a sliding scale of damages, making small offers look like capitulation demands.
The precedent is most potent in commercial lease disputes, bank guarantee cases, and other contractual interpretation fights where the amount at stake is discrete and the legal issues are arguable on both sides. It does not apply with the same force to offers made under UCPR r 20.26, to offers renewed after trial, or to offers that contain a substantial discount relative to the amount in dispute. It is also less relevant where the offeree’s prospects were demonstrably poor at the time of the offer (for example, where the offeree ignored clear adverse authority or contemporaneous documents).
Practitioners should note the procedural posture: the decision was made on the papers. Accordingly, any affidavit evidence seeking to prove the offeree’s state of knowledge must be concise; the court will not conduct a mini-trial on preparation.
How later courts have treated it
Miwa (No 2) has been favourably received and applied rather than distinguished or criticised. In Hancock v Arnold; Dodd v Arnold (No 2) [2009] NSWCA 19 (decided shortly before but cited with approval) the same bench had already signalled scepticism about purely nominal offers. Subsequent decisions have cited [19] and [23] of Basten JA’s judgment for the dual propositions that nominal offers plus costs waivers still require proof of unreasonable refusal and that unrenewed pre-trial offers carry little weight on appeal costs.
In Evans of Robb Evans & Associates v European Bank Ltd (No 2) [2009] NSWCA 170 the Court of Appeal again emphasised that the inquiry is objective, not subjective, echoing Basten JA’s warning against examining the offeror’s actual intentions. Victorian courts have treated the decision as consistent with Hazeldene’s Chicken Farm, which remains the leading Victorian authority. Federal Court decisions applying analogous principles (CGU Insurance Limited v Corrections Corporation of Australia Staff Superannuation Pty Ltd [2008] FCAFC 173) have been cited alongside Miwa (No 2) without any suggestion of conflict.
No appellate court has overruled or cast doubt on the policy statement at [23]. Later benches have repeated the warning that treating pre-trial offers as routinely relevant to appeal costs encourages “futile applications”. The case is now standard citation in costs submissions involving Calderbank letters made more than a few weeks before trial or not renewed after judgment. It has been followed in numerous single-judge decisions in the Equity and Common Law Divisions when refusing indemnity costs on small or late offers.
Still-open questions
Several questions remain unresolved after Miwa (No 2). First, how small must the monetary component be before an offer is automatically characterised as non-genuine rather than merely one that the offeree could reasonably reject? The court left open whether a $1,000 offer plus full costs waiver could ever be sufficient if the offeree’s prospects were truly poor.
Second, what degree of renewal is required to keep a pre-trial offer alive for appeal purposes? The judgment does not specify whether an email after judgment simply referring to the earlier letter would suffice, or whether a fresh offer must be made. The policy against futile applications suggests any renewal must be clear and made promptly after the trial judgment.
Third, the interaction with UCPR r 42.14 (the rule-based indemnity costs presumptions) is not fully explored. Basten JA noted at [17] that a rule-compliant offer cannot include costs, yet a Calderbank letter can. It remains open whether a party who could have used the rules but chose a Calderbank letter is in a materially worse position on appeal costs.
Fourth, the judgment assumes the offer was capable of being inferred to include a costs waiver. Future cases may test the limits of that inference where the letter is silent. Finally, the decision is silent on the position where both parties make competing Calderbank offers. How the court weighs competing nominal offers is left for another day.
These open questions mean that careful drafting, timely renewal where appropriate, and a realistic assessment of the opponent’s prospects remain essential. Most practitioners still do not realise how little weight an unrenewed pre-trial letter will carry on appeal costs; Miwa (No 2) is a salutary reminder that such letters are not a universal insurance policy.