Indemnity costs & Calderbank offer

 State of Queensland v Hayes (No 2) [2013] QSC 80


CATCHWORDS: COSTS – whether usual order as to costs that costs follow event should be made – Calderbank offer – whether indemnity costs should be ordered in part

Philippides J


The applicant’s costs application


The applicant now applies for a costs order that the respondent pay the applicant’s costs of the application for forfeiture and of the application for exclusion on the standard basis up until 21 May 2010 and thereafter on the indemnity basis.


The basis on which that costs order was sought is that the respondent failed to accept offers of compromise of the proceedings and obtained an order no less favourable than the offer that the applicant made by letter of 28 April 2010. It should be noted that no offer was made by the applicant pursuant to Part 5 of Chapter 9 of the UCPR. Instead, in seeking indemnity costs the applicant relied upon the offer of 28 April 2010 and subsequent written offers as constituting “Calderbank offers.” It was contended that it was not necessary to adduce evidence as to why the procedure provided under rules to make an order for compromise was not availed of: Jones v Bradley (No 2) [2003] NSWCA 258 at [12].


The applicant accepted that there was nothing prior to 28 April 2010 to alter the discretion which would ordinarily be exercised in the applicant’s favour for costs to be ordered to be paid on the standard basis of the proceedings in respect of both its successful application for forfeiture and its successful defence of the respondent’s application for exclusion. But, it was submitted that thereafter the evidence indicated that a different result should apply. In that regard reliance was placed on the affidavit of Hanh Ayoko sworn 15 February 2013.


The relevant principles


Generally, costs of a proceeding are at the discretion of the court but follow the event: r 681 UCPR. The discretion conferred upon the court in awarding costs is a wide one but it must be exercised judicially and not by reference to irrelevant considerations: see Latoudis v Casey (1990) 170 CLR 534.


It may be accepted that the making of a Calderbank offer is one circumstance in which the court might exercise its discretion to make an order different from the “usual” order that costs follow the event on the standard basis. As the authorities explain, there is both a public policy and a private interest in encouraging offers of compromise so as to settle legal proceedings: Cutts v Head [1984] 1 All ER 579; South Eastern Sydney Area Health Service v King [2006] NSWCA 2. In Leichhardt Municipal Council v Green [2004] NSWCA 341, Santow JA at [14] noted:

“It can be seen from these cases that the practice of Calderbank letters is allowed because it is thought to facilitate the public policy objective of providing an incentive for the disputants to end their litigation as soon as possible. Furthermore, however, it can be seen as also influenced by the related public policy of discouraging wasteful and unreasonable behaviour by litigants.”


As to the private interest which underpins the public policy objectives, Fox LJ observed in Cutts v Head [1984] 1 All ER 597 at 612:

“If a party is exposed to a risk as to costs if a reasonable offer is refused, he is more rather than less likely to accept the terms and put an end to the litigation. On the other hand, if he can refuse reasonable offers with no additional risk as to costs, it is more rather than less likely to encourage mere stubborn resistance.”


In Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435 the Victorian Court of Appeal observed:

“[21] In Grbavac v Hart, Hayne JA cited with approval what the New South Wales Court of Appeal had said in Maitland Hospital v Fisher (No 2) about the policy rationale underlying the availability of special orders for costs where offers of compromise are rejected. Like his Honour, we think that what was there said is equally relevant to the exercise of the costs discretion where a Calderbank offer has been made. The policy objectives were said to be:

‘(1)      To encourage the saving of private costs and the avoidance of the inherent risks, delays and uncertainties of litigation by promoting early offers of compromise by defendants which amount to a realistic assessment of the plaintiff’s real claim which can be placed before its opponent without risk that its ‘bottom line’ will be revealed to the court;

(2)       To save the public costs which are necessarily incurred in litigation which events demonstrate to have been unnecessary, having regard to an earlier (and, as found, reasonable) offer of compromise made by a plaintiff to a defendant; and

(3)       To indemnify the plaintiff who has made the offer of compromise, later found to have been reasonable, against the costs thereafter incurred. This is deemed appropriate because, from the time of the rejection or deemed rejection of the compromise offer, notionally the real cause and occasion of the litigation is the attitude adopted by the defendant which has rejected the compromise. In such circumstances that party should ordinarily bear the costs of litigation.’

[22] At the same time, as Redlich, J said in Aljade, there are other competing objectives of equal importance.

‘Potential litigants should not be discouraged from bringing their disputes to the Courts. It is such considerations which underlie the general rule that an order for special costs should only be made in special circumstances.” (footnotes omitted).


The fact that a Calderbank offer to settle is not accepted and the offeree ends up worse off than if the offer had been accepted is a matter which the court may have regard to in deciding whether to exercise the costs discretion to depart from the usual order, but it does not automatically bring a different order as to costs: see SMEC Testing Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37] per Giles JA; Jones v Bradley (No 2) [2003] NSWCA 258 at [8]-[9]. Ultimately, the court was required to determine whether the offeree’s failure to accept the offer warrants departure from the ordinary rule as to costs having regard to all the circumstances of the case.


In considering whether the discretion ought to be exercised other than in the usual manner, regard will be had as to whether the offer made must be shown to be a genuine one: Leichhardt Municipal Council v Green [2004] NSWCA 341 at [21]-[24],[36]. Whether or not an offer is viewed as genuine depends on the circumstances of the case. It is the task of the court to consider, “whether the particular offer in the circumstances represented a genuine attempt to reach a negotiated settlement, rather than merely, trigger any costs sanctions”: see Leichardt Municipal Council v Green [2004] NSWCA 341 at [39] per Santow JA.


Further, the offeree ought to be provided with an appropriate opportunity to consider and deal with the offer: Elite Protective Personnel v Salmon [2007] NSWCA 322 at [99].


It will be relevant to consider whether it can be shown that the rejection of the offer was unreasonable in the circumstances of the case. In that regard, it was observed in Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435 that the competing considerations which the court has regard to could

“[23] … be sufficiently accommodated by applying a test of (un)reasonableness. 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.


[24] 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.” (footnotes omitted).


In Hazeldene’s case the court considered the factors relevant to assessing reasonableness:

“[25] 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.” (footnotes omitted).


The prospect of success is a relevant consideration to the costs determination. Additionally, in Pirrotta v Citibank Limited (1998) 72 SASR 259 Debelle J observed at [27]:

“… the writing of a Calderbank letter should be one of the factors, albeit a significant factor, to be weighed by a court when considering whether to order indemnity costs. I do not think that the complexity of litigation standing alone should necessarily preclude the operation of the rule. The rule is designed to promote settlement of both complex and straightforward litigation and the court will have regard to all relevant circumstances in determining whether the penalty rule as to costs should apply.”


In Elite Protective Personnel v Salmon [2007] NSWCA 322, Basten JA observed:

“[147] Greater sympathy may be accorded a defendant who receives an offer early in proeeedings where there has been no reasonable opportunity for it to assess its questions of liability or its likely exposure in damages. Such matters must be assessed on a case by case basis. Usually litigation will not be the first that the defendant hears of the claim. However, a defendant which receives an offer of settlement in circumstances where it reasonably requires more time to consider its position would no doubt be advised to respond to that effect and, if necessary, make a counter-offer in due course.”




The applicant contended in the letter of offer of 28 April 2010 that the respondent would not succeed in excluding the land from the forfeiture order because the respondent had no interest in the land. That contention however had consequences for the applicant’s claim that the land was liable to be forfeited. And ultimately the applicant’s claim for forfeiture in respect of the land was abandoned. As for the motor vehicle, the applicant contended in the letter that the respondent would not be able to show payment from legitimate means (or that the vehicle belonged to Coombes, as the respondent had later alleged), such that the motor vehicle should be excluded. However, if the respondent was not the owner of the vehicle, as he contended, this also had implications for the forfeiture order sought. And in fact the applicant also abandoned that claim in its amended application.


Both items were excluded from the amended application presumably because the applicant did not ultimately consider it could sustain a case for forfeiture in respect of the land or motor vehicle. In these circumstances, the failure to accept the offer of 28 April 2010 which required the respondent to abandon any claim to any part of the only remaining item, ie the sum of $104,080 (albeit on the basis that each party bear its own costs), does not strike me as unreasonable. The only concession in effect being made by way of compromise was in terms of the applicant abandoning any claims for its costs.


In those circumstances, I do not consider that an order for indemnity costs after 21 May 2010 is warranted.


I note that the offer of 21 February 2011 allowed for a release of $10,000 of the sum of $104,080. The offers of 8 April 2011 and 31 October 2012 each provided for a release of $20,000 to the respondent of the restrained $104,080. None of the offers indicated that indemnity costs would be sought in the event that the offer was not accepted and the respondent failed to do better than the offer. Rather the letters indicated that the offers were made without prejudice as to costs. And the letter of 8 April 2011 also stated that the applicant would seek its costs.


In the circumstances, and bearing in mind that it was only on the eve of trial that the applicant amended its application to exclude any claim for forfeiture of the land and motor vehicle restrained by the order of Martin J (which suggests an acknowledgement that these claims could not be sustained) and that no notice was given in any event that indemnity costs would be sought, I do not consider that there should be an exercise of the court’s costs discretion against the respondent so as to order that costs on the indemnity basis be paid for any period following any of the offers made.


Accordingly, the costs order that I consider should be made is the usual order where costs follow the event, that is, that the respondent pay the applicant’s costs of the application for forfeiture and the application for exclusion (including any reserved costs) on the standard basis.


Brisbane Barrister – David Cormack

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