Plaintiff v Defendant

Supreme Court of Victoria|2011-12-07|Before: J FORREST J

COSTS - Offer of Compromise - Calderbank offer by one of two defendants inviting plaintiff to walk away - Defendants seeking indemnity costs or solicitor/client costs - Offer not clear and reasonable - No real and genuine element of compromise - Offer an offer to capitulate - Not unreasonable for plaintiff to refuse offer as reasonableness determined at the time of the offer - Application for solicitor/client costs refused.

1 On 2 December, I dismissed Ultra's claim against Dr McKinnon.

2 On 7 December 2011, I heard argument concerning the appropriate order for costs to be made in favour of Dr McKinnon.

3 Dr McKinnon sought to rely on the Calderbank offer made by his solicitors to Ultra's solicitors on 17 August 2010 which read as follows:

I am instructed to offer to bear our own costs in settlement of the proceeding against my client.

In the event that my client achieves a result more favourable than the offer expressed in this letter at trial, then my client will produce this letter on the question of costs and seek its costs, both party/party and solicitor/client from the date of the letter, pursuant to the principles enunciated in Calderbank v Calderbank [1975] 3 ALL ER 333 and applied the decision of MT Assocs Pty Ltd v Aqua Max Pty Ltd (No 3) 2000 VSC 163.

The above offer is open for acceptance for seven (14) days from the date of this letter.

4 Dr McKinnon sought party/party costs up until 17 August 2010 and thereafter costs on a solicitor/client basis. I refused his application and my reasons now follow.

5 In obtaining judgment, Dr McKinnon has done better than his offer to walk away and bear his own costs. Counsel for Dr McKinnon contends that rejection of the offer at that time was unreasonable in the circumstances and relied upon what was said by the Court of Appeal in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2).[1] He argued that the pleadings set out exactly the position of his client in relation to Ultra's claim. It should have been clear to Ultra and its solicitors, that the case (both in terms of breach of s 9 of the Fair Trading Act and in negligence) could not succeed and that there was a real benefit to Ultra in accepting the offer.

6 Counsel for Ultra submitted that the offer was an invitation to capitulate which was not unreasonably rejected by Ultra. It was, he said, unclear and deficient in detail. Moreover, he contends that many of the conclusions reached by me in relation to both the Fair Trading Act claim and the claim in negligence were dependent on findings of fact which were hotly in issue, many turning upon determinations as to credit which Ultra could not reasonably have anticipated at the time that the offer was made.

7 There had been many decisions at both appellate and trial division level concerning Calderbank offers since the Court of Appeal decisions of Hazeldene and Berrigan Shire Council v Ballerini (No 2).[2]

8 For the purposes of this application it is necessary only to refer to what was said earlier this month by the Court of Appeal in Commissioner of State Revenue v Challenger Listed Investments Ltd (No 2):[3]

In Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) this Court held that the unreasonable refusal of a Calderbank offer may be regarded as a special circumstance that may warrant an award of indemnity costs. The Court of Appeal expressed the relevant test as follows:

The critical question is whether the rejection of the offer was unreasonable in the circumstances. We see no justification for a more stringent test such as 'manifestly' or 'plainly' unreasonable.

The Court of Appeal in Hazeldene's Chicken Farm outlined a number of matters relevant to the question of whether refusal of an offer is reasonable. It said:

The discretion with respect to costs must, like every other discretion, be exercised taking into account all relevant considerations and ignoring all irrelevant considerations. It is neither possible nor desirable to give an exhaustive list of relevant circumstances. At the same time, a court considering a submission that the rejection of a Calderbank offer was unreasonable should ordinarily have regard at least to the following matters:

(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 (sic) in the event of the offeree's rejecting it. [4]

9 In relation to an offer that can be described as an invitation to capitulate, the Court of Appeal said as follows:

There is authority to the effect that where the offer does not involve a genuine compromise, but is in fact either an invitation to capitulate or a derisory or nominal offer, it would not be unreasonable for the losing party to have rejected it. [5]

10 The Court, after reviewing a number of recent decisions, then concluded:

In relation to the prospects of success, Challenger submits that the Commissioner's prospects were very low in light of the recent and considered decision of this Court in Landrow. It was contended that it would be very difficult to convince this Court that Landrow was plainly wrong.

The Commissioner contends that it was entitled to run the argument, that submissions were made that were not made in Landrow and that an alternative construction was presented.

We agree. Although the Commissioner faced substantial obstacles, it cannot be contended that the appeal was hopeless or conducted in bad faith. [6]

11 In my opinion, and for the following reasons, Dr McKinnon has not demonstrated that the Court should exercise its discretion to make an order outside the usual order for party/party costs.

12 First (and although by no means the most significant matter), the offer is not a model of clarity. It confusingly refers to the offer being open for "seven (14) days" and the reference to the actual form of putative order for costs in the second paragraph is less than ideal. Perhaps more significantly it does not set out in any way the basis upon which Ultra should, in effect, capitulate. Although, as I read the decision in Hazeldene, this is not a prerequisite to an effective Calderbank offer, it goes to the reasonableness of the rejection of an offer. Here, other than making the offer, no grounds were set out for Ultra to consider the offer and, if so minded, give up its claim.

13 Secondly, and in my view significantly at the time that the offer was made, it was not unreasonable for Ultra to put it to one side and proceed with the claim. Although Ultra's claim based on s 9 of the Fair Trading Act turned upon the certificate for mortality insurance and any implication to be drawn from it, the surrounding circumstances which were very much in issue could not be easily understood merely on the basis of the pleadings and discovery. Ultra also had a claim for negligence against Dr McKinnon. Proof of duty, breach and causation all turned upon findings of fact which were by no means clear cut. It is to be remembered that the question of reasonableness is to be judged as at the time of the receipt of the offer not through the prism of hindsight as demonstrated by the reasons for judgment.

14 Thirdly, the considerations just mentioned are all the more relevant given the nature of the offer. This was not the offer of a sum certain but an offer to capitulate. I accept, as contended by counsel for Dr McKinnon, that because an offer is effectively one to walk away and bear costs does not of itself mean that it is unreasonable. However, the nature of the offer goes very much to the reasonableness of the rejection and in this case questions of fact and credibility were all part and parcel of findings at trial rather than crystal ball gazing in August of 2010. On any view, the claim could not have been regarded as either hopeless or conducted in bad faith. The offer by Dr McKinnon could not be said to be "a serious endeavour to resolve the proceeding"; rather it was an attempt to protect his position in relation to any differential between solicitor/client costs and party/party costs.

15 I am not persuaded that I should exercise my discretion and make any order other than costs following the event on the usual party and party basis.

[2] [2006] VSCA 65. See for instance Pepe v Platypus Asset Management Pty Ltd (No 2) [2011] VSC 21, TruEnergy Pty Ltd v Dispute Resolution Panel (No 2), [2009] VSC 612, Ipex ITG Pty Ltd v State of Victoria (No 2) [2011] VSC 39.

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