Calderbank Offers: offeree’s prospects must be considered

The NSW Court of Appeal (CofA) decision in Tati v Stonewall Hotel Pty Ltd (No 2) [2012] NSWCA 124 dealt with the issue of Calderbank offers. It shows that if a party would be giving up the right to litigate an arguable claim, rejection of an offer to compromise it may well be deemed reasonable. As a consequence, the offeror will be denied an indemnity costs order.

In Tati the offeror put an offer of compromise in the appeal proceedings on the basis that the appeal be dismissed and each party pay their own costs of both the appeal and the proceedings at first instance. The offeror had won those proceedings and therefore had a standing costs order on the ordinary basis in its favour.

In deciding the offeror’s notice of motion on costs of the appeal the CofA confirmed that the standard test for determination of whether rejection of a Calderbank offer will attract an indemnity costs order requires asking 2 questions (at [10]):

“(i) whether there was a genuine offer of compromise (emphasis mine); and

(ii) whether it was unreasonable for the offeree to reject it.”

Bathurst CJ (with whom the remainder of the Court agreed) found that to give up the costs of the first instance proceedings would have been a genuine or “real’ (at [11]) compromise on the part of the offeror.

However, His Honour also found that the offer did not confer a “significant benefit” on the offeree when compared to giving up the right to have his “undoubtedly arguable” (at [12]) appeal heard.

The decision is significant because it shows that the offeror should form a view on the offeree’s prospects when deciding how to frame a Calderbank offer.

By implication the CofA seems to be saying that the better to offeree’s prospects, the more the attractive the offer needs to be. If it is not sufficiently attractive the offeree’s rejection of it will not be sufficient grounds for making an indemnity costs application.

Of course an offer under rule 20.26 the Uniform Civil Procedure Rules (UCPR) would have provided greater certainty. However, the offer made in the appeal proceedings in this case could not have been made under that rule. Offers under the Rules must be made exclusive of costs.

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