A recent New South Wales Supreme Court decision should give litigants and their lawyers pause for thought when considering offers of settlement. Ignoring an offer to settle a dispute, even if that offer is made shortly before a hearing, could have dire consequences.
Courts have a broad discretion when awarding costs. Typically, a successful party to litigation will receive a costs order in its favour. The typical costs order is for ‘party/party’ or ordinary costs. Some practitioners like to say an ordinary costs order will see a litigant paid somewhere from 60% to 75% of its total legal costs.
Often, in order to bring about a settlement of legal proceedings, parties will exchange offers of settlement. These offers often refer to the case Calderbank v Calderbank  3 All ER 333 and may be called ‘Calderbank’ offers.
If a court forms a view that a party has acted unreasonably in rejecting a Calderbank offer of settlement or allowing such an offer to lapse, it may order that the offeror receive its costs on the ‘solicitor/client’ basis, often called indemnity costs, from the time the offer was rejected or allowed to lapse. An indemnity costs order is considerably more generous than an order for ordinary costs.
The harsh costs consequences of unreasonably rejecting (or unreasonably allowing to lapse) a Calderbank offer ensure legal proceedings are not unnecessarily prolonged by parties failing to accept reasonable offers of settlement.
The relevant principles for reasonableness were considered in Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2)  NSWCA 344. In determining whether it was unreasonable for the offeree not to accept the offer, the court will consider:
1. the stage of the proceedings at which the offer was made;
2. the extent of the compromise offered;
3. the offeree’s prospects of success assessed as at the date of the offer;
4. the clarity with which the terms of the offer were expressed;
5. whether the offer foreshadowed an application for indemnity costs in the event that it was rejected; and
6. the time allowed to the offeree to consider the offer.
Unreasonableness, indemnity costs and Woollahra Municipal Council v Secure Parking Pty Ltd (No 2)  NSWSC 452
Justice Ball’s decision in Woollahra Municipal Council v Secure Parking Pty Ltd (No 2)  NSWSC 452 is apt to send a shiver down the spine of litigants and their lawyers when they next consider the implications of a Calderbank offer. Some of the criteria for unreasonably rejecting a Calderbank offer were considered. The outcome of Justice Ball’s consideration was not what some might have guessed.
In this case, complex litigation had been on foot between the litigants for some time. The plaintiff made an offer to settle the dispute on the Thursday before the final hearing of the matter, set down to begin the following week. In that offer, the plaintiff agreed to accept $1,750,000.00 in exchange for the dismissal of its claim and the defendant’s cross-claim, as well as each side providing releases.
The matter did not settle and went ahead to hearing. In the end the plaintiff was awarded nearly $7,000,000.00; well above its ‘Thursday offer’. The defendant’s cross-claim was dismissed.
The plaintiff filed a motion seeking indemnity costs from the time its ‘Thursday offer’ lapsed. His Honour found that the defendant had acted unreasonably in rejecting the offer. Indemnity costs were awarded to the plaintiff from the date the ‘Thursday offer’ lapsed.
His Honour considered a number of cases where periods of 4 days or 2 business days were found to give the offeree insufficient time to consider an offer. However, his Honour formed a view that in this case the parties before him were sophisticated, well represented, and had been engaged in settlement discussions at length before the making of the ‘Thursday offer’. In his Honour’s view, each party was acquainted with the other party’s case and would have been in a position to promptly consider any offer the other side might make.
Consider all offers
All offers exchanged between litigants must be taken seriously. One can easily imagine the defendant in Woollahra v Secure Parking being absorbed by the task of preparing for hearing, and perhaps not focusing on an offer made ‘five minutes to midnight’. As the defendant found out, the consequences of doing so can be dire.
Associate | Makinson d’Apice Lawyers
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