Resolution of the issue
12 Calderbank letters are written communications containing offers that are without prejudice save as to costs and which do not comply with the relevant rules of courts relating to the making of offers of compromise Jones v Bradley (No 2) (above).
13 The Rules providing for the making of offers of compromise are to be found at Rules 20.25 to 20.26 of the Uniform Civil Procedure Rules 2005. The Rules providing for the costs consequences of unaccepted compromise offers are to be found in Rules 42.13 to 42.18 of the UCPR 2005.
14 Calderbank letters have been accepted as a legitimate alternative to an offer of compromise under the statutory rules although, unlike the rules, they do not carry with them any right to a special costs order. For example, a court will not only deviate from the general rule for an indemnity costs order provided for by rule 42.14 of the UPCR, and make a different order, if it finds that there are exceptional circumstances for doing so. (Macquarie Radio Network Pty Limited v Arthur Dent (No 2) [2007] NSWCA 339 per Beazley JA with whom Mason P and Basten JA agreed). Calderbank letters have been encouraged as useful tools because they facilitate the public policy objective of discouraging wasteful and unreasonable behaviour by litigants.
15 In the present matter the letter sent on 30 November 2009 to Mr Mallos was marked 'without prejudice save as to costs'. The period for which the offer was open was for a relatively limited period of a little over two days. Under the Supreme Court Rules, to which I have made reference, offers of compromise have to remain open for at least twenty-eight days. Consequently the letter of 30 November 2009 may properly be described as a Calderbank letter. It was not disputed between the parties that it might be so regarded.
16 The first matter to be determined is whether the offer was "a genuine offer of compromise". In considering that matter, all the circumstances of the case must be considered. The offer contained in the letter required Zurich to pay $200,000. This sum amounted to approximately 89 per cent of the damages awarded by the assessor. The offer also required Zurich to pay the whole of the amount of the costs assessed by the assessor.
17 Zurich submitted that the only real benefit to it was the reduction in the award of approximately $25,000. Zurich submitted that, in those circumstances, it was not a genuine offer.
18 Mr Stone's submissions argued that it was not fair to assert that the degree of compromise was merely $25,000. The point he made was that, at the time when the offer was made, Harrison J had reserved his decision on the interlocutory stay application. Accordingly Zurich was already at risk of an adverse costs order at that point. It is true that Harrison J ultimately refused the stay and ordered that Zurich pay the costs of the interlocutory application. This, however, was not known at the time the offer was made and, more importantly, the offer expired before any costs order was made. Mr Stone's argument, it seems to me, really cuts both ways. The timing of the offer, and the limited time for its acceptance, really suggests to my mind that the letter of 30 November 2009 was essentially designed to 'frighten off' the insurance company before the proceedings went any further.
19 I am even more certain that this was the case when I consider the small amount of the savings that were being offered to Zurich. The offer does not attempt in any meaningful way to recognise the monetary differences between the parties in the dispute that had been debated in the assessment. Rather, it indicates the fourth defendant simply "shaved" off a relatively small amount of the sum awarded without regard to those disputed issues.
20 Mr Stone argued that a number of cases decided under rule 42.14 have made it clear that the fact that the judgment amount only marginally exceeds the amount of an offer is not a relevant consideration in the refusal of indemnity costs. A good example of this is Macquarie Radio Network Pty Limited v Dent (No 2), which I have referred above. There are other cases to the same effect.
21 The cases decided under Rule 42.14 of the UCPR 2005, however, are of limited assistance in relation to the situation where a Calderbank offer has been made and rejected. The relevant rule provides, in effect, a right to special court costs unless there are exceptional circumstances. Moreover the rule itself uses the phrase 'no less favourable' than the terms of the offer. The wording of rule 42.14 leaves little, if any, scope for an argument based on marginality.
22 Having regard to the whole of the circumstances revealed by the material before me, I have come to the conclusion that the offer was not a genuine offer of compromise but was an offer made to warn off the plaintiff by reason of the prospect for a costs sanction if the offer were not accepted.
23 If I am wrong about this conclusion, it is nevertheless necessary for the fourth defendant to satisfy me that Zurich's rejection of the offer was unreasonable. Evans Shire Council v Norman Boyd Richardson (No 2) (as above), Leichhardt Municipal Council v Green (above) at 46.
24 In determining that question, it is not without significance that there is an unusual feature about the present matter. This was not simply a case where the claimant sought compensation following an accident and the insurance company was contesting the quantum of the claim. That, of course, was the situation in the proceedings before the assessor.
25 The proceedings in this court, however, were brought as a consequence of the plaintiff's concern that it had been denied procedural fairness in the CARS assessment hearing. Although its position was undoubtedly that it believed that the claimant had received too high an award, its real complaint in this court was that it had been denied an opportunity to present its case fairly, and that it required the entire assessment hearing to take place anew.
26 The point at issue in the Supreme Court proceedings, it is conceded, was a novel one. Zurich maintained that the use of a DVD interview as evidence in a CARS assessment, without an opportunity for cross-examination, had not been considered by the Supreme Court in any previous decision. I accept that it was reasonable for Zurich to bring and maintain the proceedings. From its point of view, as an insurer appearing regularly in CARS assessment proceedings, there was a question of principle involved.
27 I accept Zurich's submissions that the case it put to the court was well and truly arguable and that it could not be described as baseless or frivolous. Mr Stone referred to paragraph 78 of my substantive decision, where I had said "it is hard to imagine a more unsuitable case to test the point". Read fairly, however, this was not an observation that suggested that the point was baseless or unarguable. Rather it pointed to some unusual features in the case, which made it so out of the ordinary as to be unsuitable to be a satisfactory vehicle for a test case of general application.
28 The observation was not intended to deny Zurich's right to a hearing, nor was it intended to suggest that the point raised was frivolous. I ultimately determined the point was without substance, but that is a different matter.
29 The fourth defendant has failed to satisfy me that Zurich's rejection of the offer was, in all the circumstances, unreasonable. I am not persuaded that there was any 'general delinquency' on the part of Zurich sufficient to move the court to displace the general rule on costs. Oshlack v Richmond River Council (1998) 193 CLR 727 at 89 [44] per Gaudron and Gummow JJ. Moreover, the amount of the offer bore no real relationship to the amounts in dispute in the assessment. Zurich could not be criticised for believing that it had reasonable prospects of success in relation to its claim that it had been denied procedural fairness, even though it ultimately failed on the point. In that context, the offer did not operate as a reasonable enticement to bring the proceedings to an end.
30 The order I have made for costs on 31 March 2010 should stand. The application for indemnity costs, however, is dismissed.