Plaintiff v Defendants

2 The relevant parts of the offer reads as follows:

Put simply, your client will not be able to establish that any negligence on our client's part was causative of the injuries allegedly sustained by the worker.

In particular, whilst Mr McLean and Mr Lightfoot discussed the issue of lighting at the premises, neither expert actually concludes that the state of the lighting was causative of the incident. In the case of Mr McLean, he acknowledges that horses are fractious and unpredictable animals. It is also well known that it is industry practice for track work to be conducted around dawn, and indeed the worker had been performing track work with our client's premises for some months.

It is also noted that both experts base their findings on a number of assumptions that are incorrect, including the colour of the running rail at my client's premises at the time of the incident.

In order to avoid any unnecessary costs incurred in this matter our client offers to set your client's claim on the basis that our client will bear its own costs incurred to date in exchange for your client agreeing to release discontinue [sic] this proceeding that it is issued against our clients. Our client's offer will remain open for acceptance until 4.00pm Tuesday 23 August 2016.

3 Interestingly the letter went on to refer to two English single judge decisions, including Calderbank, and an unreported decision in 1993 - Mutual Community Ltd v Lorden Holdings Pty Ltd.[2] It is, to put it mildly, surprising that there was no reference to Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2)[3] - a decision of the Court of Appeal which was cited in the O'Briens' written submissions. Of course, this is not determinative but rather a reflection on the fact that notwithstanding that Hazeldene, the paradigm in this state on Calderbank offers, was decided over 10 years ago, it still does not find its way into the letter.

4 The submission made on behalf of the O'Briens was that the offer made it clear to VWA, an experienced litigant, that there were major difficulties in what was an 'all or nothing' case.[4] The letter spelt out the problems with the expert evidence and causation. It was said that a litigant with VWA's civil litigation know-how in this jurisdiction should have been aware of the weaknesses in the case and that the refusal, notwithstanding the terms of the offer, was unreasonable.

5 VWA contends that it was reasonable to proceed in the face of the walkaway offer, based on the information it had at that time. The offer was an invitation to capitulate which, generally, can be difficult to sustain unless it can be shown that the case was close to hopeless and the refusal unreasonable.

6 In determining whether the refusal of an offer is reasonable, the general principles set out in Hazeldene must be applied:

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.

Of course, deciding whether conduct is "reasonable" or "unreasonable" will always involve matters of judgment and impression. These are questions about which different judges might properly arrive at different conclusions. As Gleeson CJ said recently, "unreasonableness is a protean concept". But a test of reasonableness is, we think, entirely appropriate to the exercise of a discretion such as this.

Factors relevant to assessing reasonableness

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 in the event of the offeree's rejecting it.

It has been argued on occasion that the maker of a Calderbank offer should not be entitled to costs unless the offer sets out, with some reasonable specificity, the basis for the offeror's contention that the offeree should accept the compromise - for example, because the offeree's case was hopeless or because the offeree had no reasonable prospects of doing better in the proceeding than was being offered in advance.

Once again, we think it neither necessary nor desirable to lay down any general rule in this regard. We agree with what Redlich J said in OCBC, as follows:

Any attempt to prescribe the reasoning which must accompany [a Calderbank] offer should be resisted. Whether there is a need for the offeror to descend to specificity as to why the offer should be accepted must depend upon a consideration of all of the circumstances existing at the time of the offer. The extent to which the weakness of a party's position is exposed through the pleadings, affidavits and the various communications between the parties during the course of the litigation may bear upon the significance of the absence of specificity in the informal offer.

As we said at the outset, the unreasonable refusal of an offer of compromise is, by itself, a proper ground for the award of indemnity costs or - in the present case - the award of solicitor - client costs. It follows that it is not necessary for the applicant for such an order to establish matters which might be relevant to other, well-recognised, grounds for indemnity costs. Once again we would adopt what Redlich J said in OCBC, as follows:

It is not necessary to establish misconduct by the offeree before the rejection of the offer can be viewed as unreasonable. Lack of merit in the way a party has conducted its case is not a prerequisite for the making of an indemnity costs order [on this ground].

Nor is it necessary for the applicant offeror to show that the offeree acted with "wilful disregard of known facts or clearly established law", or that it acted with "high-handed presumption". We agree with Redlich J that such conduct is not a prerequisite for a finding that the rejection of a Calderbank offer was unreasonable.[5]

7 These principles have been consistently applied, and were recently reiterated by the Court of Appeal in Marriner v Australian Super Developments Pty Ltd.[6]

8 In Commissioner of State Revenue v Challenger Listed Investments Ltd (No 2),[7] the Court of Appeal made the following observations as to an offer which does not represent a genuine compromise and therefor fails the reasonableness test:

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.

In Berrigan Shire Council v Ballerini & Anor (No 2) Callaway JA observed that the treatment of Calderbank offers comes down to the question of whether the rejection was unreasonable in the circumstances. In that case, the offer was an offer to walk away. Callaway JA characterised it as a demand to capitulate that could reasonably be rejected.

In the case of Truenergy Pty Ltd v Dispute Resolution Panel (No 2) Cavanough J considered that in order for a Calderbank offer to be taken into account by the court, it should be attractive in all the circumstances and not merely comprise, in effect, a demand to capitulate.

In the recent case of Pepe v Platypus Asset Management Pty Ltd (No 2) Almond J held that offers of $65,000 and $90,000 (inclusive of costs) were properly rejected in circumstances where the claim was in excess of one million dollars.

In our opinion and in the circumstances of this case, it was not unreasonable for the Commissioner to reject the offer made on 18 March 2011. The offer, in effect an offer to walk away, in our opinion amounts to a demand to capitulate. A reduction of $5000 from a costs order may realistically be regarded as de minimis in the circumstances. The offer does not represent (in financial terms) a serious endeavour to resolve the proceeding. It was, given the amount involved in the case, no more than a token offer.[8]

9 In addition to the cases referred to by the Court of Appeal in Commissioner of State Revenue, there are other recent decisions of trial judges in this state in which walkaway offers have been treated as no more than an offer to capitulate and not a genuine offer which has been unreasonably refused.[9]

10 In Nilumbik Shire Council v Victorian YMCA Community Program Pty Ltd,[10] the Court of Appeal considered whether there was error on the part of a trial judge who, applying the principles stated by the Court of Appeal in Hazeldene and Commissioner of State Revenue, declined to make an order as to solicitor-client costs on the basis that the offer was an invitation to capitulate or derisory. Tate JA said as follows:

In my view it cannot be concluded that the judge failed to take account of the relevant principles governing an award of costs in a context in which a Calderbank offer or an Offer to Contribute has been made and rejected. Her Honour's reasons make it apparent that she was live to the criteria expressed in Hazeldene and engaged in a careful dissection of the facts in applying them to determine that the rejection of the offers was not unreasonable. The judge was particularly conscious, quite properly, of the need to assess the reasonableness or otherwise of the rejection of an offer at the time, and in the circumstances, in which it was rejected, and not with the benefit of hindsight or through the prism of a subsequent appellate determination.[11]

11 In this case, the following is relevant to the decision made in August 2015 by VWA to reject the offer:

(a) At trial, VWA succeeded in establishing both duty and breach of duty and only failed on the causation point - appropriately noted as the last hurdle. It was entitled in August 2015 to consider that it had a reasonable prospect of success on both these elements.

(b) Whilst it is true that the causation point and the lack of expert evidence to support it was brought to the attention of the solicitors for VWA, that was not the end of the matter. Notwithstanding that there may have been statements of witnesses available to the parties, as is demonstrated by the judgment this case turned very much on the lay evidence regarding the circumstances surrounding the horse, Super Sequalo, shying and causing the injury: that evidence was 'all over the shop'. The quality of Dr McLean's opinion could not really be analysed until the underlying facts were marshalled and determined. That depended very much on what happened at trial.

(c) The reports of Dr McLean available to VWA in August 2015 were not so hopeless as to require a withdrawal of the claim. He identified a causal link between the lack of light and the accident. Whilst ultimately I held that his opinion was insufficient to establish causation it was, I think, reasonable to rely upon it as part of the matrix of evidence which made it appropriate to reject the walkaway offer. As I have just said, whilst causation was always problematic much depended upon how the lay evidence emerged at the trial and particularly the evidence of the two jockeys.

12 So in summary, it was not unreasonable of the VWA to decide in August 2015 to prosecute the claim in the light of what was, in effect, an offer to capitulate or walkaway.

13 It follows that VWA should pay the O'Briens' costs of the proceeding on a standard basis, with the exception of the preparation and filing of the written submissions dealing with the effect of the Calderbank offer, in respect of which VWA's costs should be paid on a standard basis by the O'Briens.

[1] Calderbank v Calderbank [1975] 3 All ER 333 ('Calderbank').

[2] (Unreported, Supreme Court of Victoria, Byrne J, 28 April 1993).

[3] [2005] VSCA 298; (2005) 13 VR 435 ('Hazeldene').

[4] Paragraph 8 of the O'Briens' submission.

[5] [2005] VSCA 298; (2005) 13 VR 435, 441-443 [23]-[29].

[6] [2016] VSCA 141, [234]-[235].

[7] [2011] VSCA 398 ('Commissioner of State Revenue').

[9] See Williams v Katis [2014] VSC 471[21]-[24]; Re Akron Roads Pty Ltd [2016] VSC 778, [7]-[9].

[10] [2016] VSCA 192.