Plaintiff v First Defendant

Supreme Court of Victoria|2015-04-17|Before: J FORREST J

COSTS - Calderbank offer - Contribution proceeding - Whether offer genuine or tactical - Appropriate cost scale - Whether award of cost should be on indemnity basis.

1 On 5 March, I gave judgment in the contribution proceeding between Liquorland and Linfox.[1] The trial occupied six hearing days and liability between the two was apportioned 40 per cent to Liquorland and 60 per cent to Linfox.

2 There is now a dispute between Liquorland and Linfox as to what order, if any, I should make in relation to Liquorland's costs. Central to the debate is the efficacy of two purported Calderbank offers (sent by letters attached to emails from Liquorland shortly prior to trial).[2] Although the submissions canvassed a number of issues, the central dispute was whether the letters constituted genuine offers to resolve the dispute, as opposed to being solely a tactical cost protection exercise.

3 There was no dispute as to the factual matters surrounding the trial and the Calderbank offers. The following summary is taken from the two affidavits of Ms Mary McLeod, the solicitor for Liquorland.

• On 6 November 2013 the proceeding was fixed for trial on 6 October 2014.

• A Court-ordered mediation took place on 8 September 2014 - it was not successful.

• On 17 September Linfox served a Notice of Willingness to Contribute, offering to resolve the matter at 40 per cent of Ms Zealley's claim.

• On 2 October the Court ordered that a judicial mediation be held. It commenced on 6 October and continued into 7 October 2014. In addition, the trial date was vacated and refixed for 10 October.

• Ms Zealley's claim was settled shortly before lunchtime on 8 October 2014 by her acceptance of a joint offer put on behalf of both defendants.

• On the afternoon of 8 October 2014, the solicitor for Liquorland by telephone suggested settlement of the contribution proceeding on the basis of Liquorland and Linfox each contributing 50 per cent towards Ms Zealley's settlement. The solicitor for Linfox responded by stating that Linfox would not contribute more than 30 per cent to any such settlement.

4 The first Calderbank offer (the first offer) was attached to an email from the solicitor for Liquorland to the solicitor for Linfox, sent after business hours, at 5.46pm on Wednesday 8 October and read as follows:

Dear Mr Guthrie,

Wesfarmers Limited (Liquorland Australia Pty Ltd) & Anor ats Michelle Zealley

We note the Plaintiff has accepted the Defendants' offer of settlement of $540,000 damages and party/party costs and disbursements.

We further note the contribution proceeding between our client, the First Defendant, and your client, the Second Defendant, ("the contribution proceeding") remains unresolved.

The First Defendant offers to resolve the contribution proceeding on the basis that the First Defendant contributes 50% towards the Plaintiff's damages of $540,000 and 50% towards the Plaintiff's party/party costs and disbursements (Offer).

We make this Offer in a genuine attempt to settle the contribution proceeding and to avoid the significant solicitor/client costs which our client will incur in the contribution proceeding continuing further.

If your client fails to accept this Offer, and if our client obtains a judgment which is equal to or more favourable to it than the terms of this Offer, we reserve the right to produce this letter to the Court in support of an application for an order compelling your client to pay the costs our client will incur in the contribution proceeding continuing from the date of this letter on an indemnity basis.

When seeking the order referred to in the preceding paragraph, our client will rely on the principles enunciated in Calderbank v Calderbank [1975] 3 All ER 333 and Cutts v Head [1983] EWCA Civ 8; (1984) 1 All ER 597 which were adopted by the Honourable Mr Justice Byrne of the Supreme Court of Victoria in the cases of Mutual Community Limited v Lorden Holdings Pty Ltd (unreported, 28 April 1993) and John Holland Construction & Engineering Pty Ltd v Majorca Projects Pty Ltd & Anor (unreported, 1 November 1996), by the Honourable Mr Justice Gillard of the Supreme Court of Victoria and MT Associates Pty Ltd v Aquamax Pty Ltd & Ors [2000] VSC 163 (unreported, 3 May 2000), by the Honourable Mr Justice Ashley of the Supreme Court of Victoria in Clarke & Anor v ABC & Anor [2001] VSC 274 (unreported, 9 August 2001) and by the Honourable Justice Eames of the Supreme Court of Victoria in Toomey v Scolaros Concrete Constructions Pty Ltd (4) (2002) VSC 28 (unreported, 27 February 2002) and the Court of Appeal of the Supreme Court of Victoria in Hazeldene's Chicken Farm Pty Ltd v Victorian Workcover Authority [2005] VSCA 298 (unreported, 13 December 2005).

This Offer will remain open for acceptance until 5.00pm tomorrow at which time it will lapse and will no longer be valid for acceptance by your client.

Should you believe there is any aspect of this letter which is unclear or ambiguous, please telephone the writer to seek clarification of same before this Offer lapses.

Otherwise, we look forward to hearing from you as soon as possible.

5 Mr Guthrie, who I assume was still at his desk, replied by email at 6.38pm in the following terms:

Dear Richard

I refer to the Calderbank letter you sent attached to the email below in respect of the contribution proceeding.

Your Calderbank letter is not marked "without prejudice" but I presume by its nature that it is a "without prejudice" communication.

Could you confirm the letter is "without prejudice" and not intended to be an open letter.

Regards

David

6 On the following morning, at 9.31am, the offer was repeated in identical terms (including the time for acceptance) but with the annotation 'without prejudice save as to costs' (the second offer).

7 The offers were not accepted by Linfox. No further communication was exchanged between the parties in relation to the offer.

8 The Calderbank principles have been addressed on many occasions in this state by trial judges and the Court of Appeal. It is only necessary for the purpose of this exercise to refer to the leading case of Hazeldene's Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2).[3]

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.

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.[4]

9 I hope I do no disservice to the very helpful oral and written submissions made by counsel by summarising them as follows.

10 Liquorland argued that both offers were genuine and that the terms were clear; once Linfox had failed to accept the offers within the specified timeframe it was at risk of indemnity costs if an award of over 50 per cent were made in favour of Liquorland. It was said that there was no discretionary consideration which should vitiate Liquorland's entitlement to costs on an indemnity basis.

11 Linfox contended that when all the circumstances surrounding the offers were examined, they could not be regarded as genuine; rather, they represented nothing more than an attempt to shore up an entitlement to costs. Counsel for Linfox argued, as a secondary position, that if if the offers were found to be genuine, the Court should, in the overall exercise of discretion, only award costs on a standard basis, as any greater uplift would represent a windfall in contrast to the usual position.

12 I should mention two points here. First, counsel for Linfox specifically eschewed any reliance on the timing of the offer (i.e. that there was only a short time for Linfox to consider the offer and respond) as affecting its validity. He did, as I set out at [16] below, rely upon the timing of the offer to demonstrate a lack of bona fides on the part of Liquorland. Second, he did not contend that the absence of any reference to the payment of costs as between the two defendants (as opposed to the payment of Ms Zealley's claim and costs) meant that the offer lacked sufficient clarity. Both these concessions were properly made.

The statutory framework for offers of compromise

13 The arguments of Linfox against the efficacy of the Calderbank offers relied, to some extent, upon the manner by which offers are made between defendants in the context of the Supreme Court Rules.

26.10 Contributor parties

(1) If two or more parties (the contributor parties) may be held liable to contribute towards an amount of debt or damages that may be recovered from the contributor parties, any of those contributor parties may, without prejudice to that contributor party's defence, make an offer to another contributor party, to contribute, to a specified extent, to the amount of the debt or damages.

(2) If an offer is made by a contributor party (the first contributor party) and not accepted by another contributor party, and the first contributor party obtains a judgment against the other contributor party more favourable than the terms of the offer, then, unless the Court otherwise orders, the first contributor party is entitled to an order that the contributor party who did not accept the offer pay the costs incurred by the first contributor party -

(a) before 11.00 a.m. on the second business day after the offer was served - on the ordinarily applicable basis; and

(b) after the time referred to in paragraph (a) - on an indemnity basis.

15 As to the time permitted to accept an offer, rule 26.03(3) provides as follows:

An offer of compromise may be expressed to be limited as to the time the offer is open to be accepted after service on the party to whom it is made, but the time expressed shall not be less than 14 days after such service.

16 Linfox put the following proposition in its written submissions:

The policy underpinning Calderbank offers regards 'the promotion of settlement of disputes'. The key, then, is that any offer purported to be made pursuant to Calderbank v Calderbank must be a 'genuine offer of compromise'. The foundation of the Calderbank decision itself rests on a party 'willing to make a compromise'.[5]

Linfox relied upon what was said by the Court of Appeal of Western Australia in McLean v Rottnest Island Authority:[6]

The court should not encourage the use of a Calderbank letter delivered shortly before trial when the other party might reasonably be expected to have their minds on a number of matters. The use of a Calderbank letter is an aid to the administration of justice and should be encouraged. Its use as an indiscriminately wielded tactical weapon should be discouraged.[7]

17 I accept that a relevant factor, indeed at times a highly relevant factor, is whether the Calderbank offer is a genuine effort at effecting a compromise.[8]

18 However, I do not accept that the sole purpose of a Calderbank offer is to promote settlement. There is a legitimate allied purpose, namely to give the offeror cost protection in the event of an unreasonable refusal by the offeree. This, I think is clear from what was said by the Court of Appeal in Hazeldene.

19 Notwithstanding the tight timeline in which Liquorland required a response from Linfox, I am satisfied that the offers were genuinely intended to resolve the proceeding. I am also of the opinion that they are effective offers entitling Linfox to seek an order for costs. My reasons are as follows.

20 The first offer, sent in the early evening of 8 October, was a valid offer. In its written submissions, Linfox complained of the letter not bearing the words 'without prejudice'. There is nothing in this point. The failure to include a reference to 'without prejudice' simply meant that it was an open offer and could, subject to any evidentiary point (eg s 135 of the Evidence Act), have been relied upon by Linfox as an admission of responsibility on the part of Liquorland. It follows that the offer was open for acceptance for just short of 24 hours. If Linfox had been so minded, it could have accepted the offer and enforced the agreement.

21 Second, the first offer was made shortly after Ms Zealley's claim had been settled at the conclusion of a lengthy judicial mediation. Linfox and its lawyers could not have been in any better position, pre-trial, to gauge the merit of the offer and whether it should be accepted or rejected. There was no evidence, nor any inference, available that Linfox, its solicitor and senior/junior counsel were distracted by pre-trial preparation so as to be unable to give the offer appropriate consideration (indeed, Linfox called no viva voce evidence at the trial and tendered a smattering of documents). By the time the first offer was made, Linfox knew exactly what amount it would be up for if it accepted the offer - Ms Zealley's claim had been settled for a fixed sum and making an estimate of her costs was a relatively simple task.

22 Moreover, the first offer was consistent with what had been discussed in the afternoon between the solicitors, and particularly the proposition advanced by Liquorland's solicitors of a 50/50 split. The second offer, the next morning, simply reaffirmed Liquorland's position.

23 Third, each of the parties is experienced in litigation in this Court and in the County Court. Both are self-insurers under the Accident Compensation Act and are well aware of the pitfalls that can be encountered with a rejected Calderbank offer. It is significant that it was not suggested that Linfox did not have adequate time in which to consider the offer.

24 Fourth, and this follows from what I said at [18], to some extent any offer of compromise or Calderbank offer is necessarily a tactical weapon. At the heart of a Calderbank offer are two factors - settlement of the case and protection on costs if the offer is ultimately regarded as reasonable. Characterisation as a tactical weapon does not necessarily defeat the efficacy or the genuineness of the offer.

25 Fifth, Linfox's proposition that the first offer was made 'without an intention for it to be accepted' is not supported by the evidence. Apart from the limited period for acceptance, there is no basis to draw this conclusion and that short period did not prevent, as I have mentioned, adequate consideration of the proposition put by Liquorland. I repeat that Linfox could, armed with the knowledge it had of the merits of the case, have accepted the offers on 9 October. It seems clear, given the conduct of the negotiations, that Linfox considered the first offer and elected not to accept it. It is noteworthy that at no time (aside from clarifying whether the first offer was an 'open offer') did it ask for clarification of either offer or seek an extension of time so that it could consider its position.

26 Sixth, I reject the proposition contained in Linfox's written submissions that the 'letter sought indemnity costs from the date of the expiry of the offer contained in the letter, with no explanation as to why such an order could be justified in lieu of an order for costs on the ordinary applicable basis'. This was litigation between two experienced litigants with highly competent lawyers (solicitors and senior and junior counsel) advising them. The mediation had just concluded and the parties were sufficiently well-armed with information to settle Ms Zealley's claim. The first offer made the position crystal clear - the lawyers for Liquorland would seek an order for indemnity costs if the offer was not accepted and the verdict obtained bettered that offer. There was no need for justification or explanation - this is part and parcel of common law litigation day in and day out in this state.

27 Seventh, I do not accept that the failure to explain the costs consequences if the offers were accepted is of any significance, as submitted by Linfox. Of course, a Calderbank offer must be stated as clearly as possible. It is also true, as Linfox argued, that the offers did not deal with the question of costs of the two defendants if accepted. Originally I thought that there might be something in this proposition. However, after discussion with counsel about the usual practice in such cases, the point fell away. At the time of each offer, virtually all the costs expended by each defendant related to the defence of Ms Zealley's claim. The only discrete cost relevant to the contribution proceedings was probably the drafting and filing of the contribution notices between the two parties. In the circumstances of this case, I accept that it was implicit in the first and second offers that each party would bear their own costs.

28 Moreover, counsel for both defendants were agreed that the usual practice in the common law jurisdiction where a contribution contest takes place after settlement of a plaintiff's claim is that, absent an offer of contribution under the Supreme Court Rules or a Calderbank offer, each party will bear its own costs. This may sound a little strange, but the reality is that where there is apportionment there is no outright winner.

29 Finally, I do not see any relevance in the time prescribed for acceptance of an offer to contribute under Order 26. It is now well accepted that the Calderbank process stands alongside the offer of compromise regime under the Supreme Court Rules. The two are compatible. Of course it was open to Linfox to make an offer to contribute that would have been open for 14 days; however, I do not accept that such a provision demonstrates the offers made by Liquorland were lacking in bona fides. It was legitimate to make a Calderbank offer shortly prior to the start of trial. The fact that there was an alternative avenue to settle the case and gain protection on costs does not mean that the offers were not genuinely made with the purpose of effecting settlement.

30 In summary, I accept that the first and second offers were genuine offers which attempted to settle the case and that Linfox was fully aware of the consequence of a successful Calderbank offer.

On what scale should the order for costs be made?

31 I do not accept Linfox's contention that there should either be no order for costs or, alternatively, that costs should be awarded on a standard basis under the Supreme Court Rules.

32 As I mentioned earlier, it was accepted by counsel for both of the parties that where an apportionment occurs in a contribution proceeding then the usual order (notwithstanding that the contribution proceeding may have been fought for days or weeks separate to the primary claim of the plaintiff) is for each party to bear its own costs. This is because each party has been successful on its claim for contribution.

33 But I see no reason why this position should result in the clear terms of the Calderbank offers and the costs consequences set out being avoided (save for the time that those costs consequences commence). The two offers made it patently clear to Linfox that if Liquorland recovered contribution of over 50 per cent of the settlement sum then Linfox was at risk of an order for indemnity costs. This experienced litigant and its lawyers must have been able to assess that risk in determining whether to accept or reject the offer. It is too late now to say that the offers (and, more importantly, the stated consequences of rejection) should be treated as meaningless or that they are somehow devalued.

34 There is no basis upon which to deprive Liquorland of an order for costs merely because the standard practice is that of no order for costs. The purpose, legitimate as I have tried to explain, behind the offers was dual - to effect a settlement and, if not, to gain protection for its costs in what turned out to be a six-day trial.

35 Liquorland is entitled to its costs. Moreover, I see no reason, given the terms of the offers and well-known consequences of a refusal to accept a Calderbank offer, for it to be deprived of an order for indemnity costs as foreshadowed. The only exception to this is that the cost consequences should commence from expiry of the offer rather than the date of the letter.

36 Liquorland is entitled to an order that Linfox pay its costs of the contribution proceeding on an indemnity basis including the costs of the application heard on 1 April 2015, from the day after expiry of the offer, 10 October 2014.

[1] Zealley v Liquorland (Australia) Pty Ltd & Anor [2015] VSC 62.

[2] To avoid confusion and notwithstanding Linfox's arguments, I have referred throughout these reasons to the contents of the letters as 'offers'.

[3] [2005] VSCA 298; (2005) 13 VR 435, 442 [25] ('Hazeldene').

[5] Linfox's submissions [9] (citations omitted).

[7] See also MisShel (as executor of the estate of Mishel) v Mishel Holdings Pty Ltd [2012] VSC 421.

[8] See Calderbank [1976] Fam 93, 106.

At a glance

Court

Decision date

Before

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Judgment (63 paragraphs)

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Cases Cited (1)