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[2006] VSC 292
Supreme Court of Victoria
2006-08-08
BYRNE J
Original judgment source is linked above.
Practice and Procedure - costs - defendant's offer of compromise - plaintiff's Calderbank offer - whether defendant's failure to accept offer was unreasonable.
1 On 28 July 2006, I made findings to the effect that Fletcher was entitled to damages for breach of contract in the sum of $900,591.48. The parties have agreed that interest upon this sum to 8 August is $262,978.88. This should be included in the judgment.
2 It was also agreed that Fletcher should have its costs of the proceeding, including reserved costs.
3 The issue for determination was as to whether these costs should be assessed on a party and party basis, as Renold contended, or an indemnity basis from 4 June 2004; alternatively, from 15 November 2004. This debate depended upon the effect of two offers of compromise served by Fletcher on these dates.
4 Each was sent with a covering letter entitled, "Without prejudice except as to cost". The terms of the 25 June 2004 offer were as follows:
"Take notice that the plaintiff offers to compromise this action on the following basis:
1. That the defendant pay the plaintiff $550,000 in full and final satisfaction of the claim.
2. That upon acceptance of the offer of compromise a notice of discontinuance be filed by the plaintiff in this proceeding.
3. That the terms of the terms of the offer of compromise, if accepted, be confidential save for the right of either party to disclose upon enquiry that the proceeding herein has been settled and discontinued.
4. That this offer of compromise remain open until close of business on 18 June 2004.
5. That this offer of compromise is served in accordance with order 26, rule 2, subrule (3) of the Supreme Court Civil Procedure Rules 1996."
5 The terms of the offer of 15 November 2004 were identical, save that the sum mentioned in paragraph 1 is reduced to $400,000 and the offer is expressed to remain open until close of business on 29 November 2004.
6 Neither offer was accepted, or even responded to, and the case proceeded to a judgment, the amount of which was, in dollars, very much less favourable to Renold than either of the sums offered.
7 The argument put on behalf of Renold was two-fold:
(1) the offer did not comply with order 26;
(2) the decision of the defendant not to accept either offer was not unreasonable.
8 The first submission fastens upon the term as to confidentiality. It is said, in reliance upon the decision of Gillard J in White v Director of Housing[1] that since it is not possible to quantify the value of this term, it is not possible for the court to conclude that the judgment is no less favourable to the plaintiff than the terms of the offer seen as a whole.
9 It was put on behalf of Fletcher that in a case such as the present, such a contention lacked reality. The confidentiality provision was inserted in the offer for the benefit of Renold which would, if the offer were accepted, be spared the adverse publicity of a defective product. This being the case, it cannot be weighed in the balance against Fletcher.
10 The contrary argument relied upon the decision in White's case and added that the term as to confidentiality may have been a benefit to Fletcher which would thereby be spared the embarrassment of being seen as having purchased a defective product.
11 It was submitted on behalf of Fletcher that the decision in White was distinguishable, alternately that it was just wrong and should not be followed. I need express no concluded view as to this matter, given the conclusion which I have reached on the second point.
12 The two offers were expressed to be without prejudice save as to costs. Notwithstanding that they were expressed to be made pursuant to order 26, they might then be treated as Calderbank offers.[2] The Court of Appeal has recently laid down the principles upon which the court must consider the effect on costs orders of Calderbank offers. In Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2)[3] it said that: where a Calderbank offer is made, it may be brought to account when costs orders are to be made. There is no presumption that where such an offer is rejected, the offeree should pay indemnity costs where it receives a less favourable result. Indemnity costs will be awarded in such a case only where it is demonstrated that the rejection of the offer was unreasonable.
13 In the Hazeldene's case the offer was made by the respondent to the appeal. In the present case the offers were made by the plaintiff. The policy underlying the principle in Calderbank v Calderbank is that a party in receipt of an offer of compromise should be offered some incentive to consider the offer seriously. Where the offer is made by a defendant, the plaintiff, who expects to recover judgment, has the incentive that if the judgment is less favourable it may suffer an adverse order for costs, notwithstanding that it is ultimately successful in the sense that it receives an award of damages.
14 Where the offer is made by a plaintiff, this underlying objective may be achieved, but in a rather different way. The incentive in this case is that the defendant is at risk of an order for indemnity costs rather than for an order for party and party costs. Furthermore, in the case of a plaintiff's offer, the requirement that the non-acceptance be unreasonable takes on a particular significance.
15 A plaintiff may be supposed to be aware of the claim which it makes, including, even in a general way, its magnitude and its prospects of success. A defendant, however, faced with an offer of compromise may not have this awareness. It is often the case that the defendant cannot know these things. If it appears that this lack of awareness is not due to its own default, it is difficult to conclude that its rejection of the offer was unreasonable.
16 So, in the present case, counsel for Renold argued that it did not have sufficient information to form a view of the prospects of success of the offeror plaintiff. The proceeding was commenced in January 2004, some 11 months after the deficiencies in the chains had become apparent, and a few months after the chains were replaced in July 2003 and in November 2003.
17 The damages claimed in the statement of claim as amended on 30 April 2004 were put under three heads:
• cost of replacement chains, $79,044;
• cost of installation of replacement chains, $263,906;
• cost of installation of replacement chains, $407,945.
It will appear that the third head of damage appears to have been misdescribed in this pleading as the details provided made it clear that this was essentially a claim for consequential loss of profit due to lost production and lost sales due to the failure of the chains.
18 As at 4 June 2004, the date of the first offer of compromise, Renold had requested information and documentation to substantiate the quantum of the claim. This was not provided. Accordingly, it was put, Renold and its legal advisors were unable to assess the quantum of the claim. It was contended that this inability was due to no want of diligence on their part. I agree.
19 If a plaintiff wishes to make a Calderbank offer and to rely upon its non-acceptance, it must show that its rejection by the defendant was unreasonable. It cannot be said that the defendant acted unreasonably where its inability to assess the offer is due to the failure of the plaintiff to provide sufficient information. This is particularly the case where the plaintiff's failure was contrary to the rules and practices of the Court. I will therefore not make an order for indemnity costs based on the failure of the defendant to accept the offer of June 2004.
20 The position of Renold on 15 November 2004 was no different. The offer on this occasion was reduced to $400,000, a figure which is only $57,000, or thereabouts, greater than the claimed cost of replacement and installation, the first two heads of damage. It was put that there was no basis upon which even this reduced offer might be assessed. My finding after trial was that Fletcher's damages for the first two heads, the cost of replacement and the installation of the chains were, in the aggregate, $355,022.
21 As things stood in November 2004, the $400,000 offer of Fletcher included not only this sum but also such statutory interest as might be awarded, and the costs which Fletcher might have incurred. Regard might also be had to the value of the confidentiality term and also to the prospect that Fletcher might recover some damages for its consequential loss claim, although this amount could not be known.
22 Some of these matters might have been difficult to quantify in November 2004. Nevertheless, looking at the picture as a whole, the rejection of the offer must, in the light of the result, be seen as unreasonable. I will therefore award costs on an indemnity basis from the last date upon which this second offer was open for acceptance.
23 The orders in this case therefore will be as follows:
1. Judgment for the first plaintiff in the sum of $900,591.48, together with damages in the nature of interest in the sum of $262,978.88.
2. The defendant pay the plaintiff's costs of the proceeding, including reserved costs, such costs to be taxed as follows, in default of agreement: costs up to and including 29 November 2004 on a party and party basis and thereafter on an indemnity basis.
[1] [2003] VSC 124 at [17].
[2] Mideco Manufacturing Pty Ltd v Tait [1989] VicRp 6; [1989] VR 50 at 57, per Gobbo J.
Fletcher Insulation (Vic) Pty Ltd
Renold Australia Pty Ltd