Offers Made at Mediation: Can They Form a Basis for an Indemnity Costs Order? by Alph Edwards & Roger Frare | June 2007 Area of Expertise | Life Insurance
In Azzi & Ors v Volvo Car Australia Pty Ltd1 the New South Wales Supreme Court was asked to consider whether an offer made at mediation was admissible in an application for an indemnity costs order. The Court refused to admit such evidence on the basis that s30(4) of the Civil Procedure Act 2005 (CPA) rendered such communications inadmissible. The Court also dealt with the circumstances that are necessary in order for a Calderbank offer to give rise to an indemnity costs order.
The Facts The defendant obtained judgment and costs against the plaintiffs in the substantive proceedings. Subsequently, the defendant applied for indemnity costs from the date it made an offer to the plaintiffs during an unsuccessful mediation. The Court had referred the parties to mediation pursuant to s26 of CPA.
The Judgment The defendant had not served an Offer of Compromise or a Calderbank letter but argued that it could submit evidence of its offer made at the mediation pursuant to s131 of the Evidence Act. Section 131 prohibits evidence of any communication or document relating to an attempt to settle a matter, to be admitted into evidence. Subsection 2(h) however, provides that this section does not apply if, inter alia,“the communication or document is relevant to determining liability for costs”. It was further submitted by the defendant that s30(4) of the CPA was not intended to exclude or oust the jurisdiction of the Court to make an indemnity costs order by reference to offers that were made at mediation. Section 30(4) provides that evidence of anything said or of any admission made in a mediation session or a document prepared for the purposes of, or incidental to the mediation, is not admissible in evidence in any proceedings before any court or other body. Justice Brereton rejected the defendant’s argument. He found that: •
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Section 131(2) (h) does not make evidence of every relevant offer of settlement admissible, rather, it simply removes the bar to admissibility imposed by s131 (1), not any other bar. Specifically, it did not remove the bar imposed by s30(4) of the CPA. Section 30(4) was not an ouster of the Court’s jurisdiction on costs. Rather, it was simply a rule of evidence and in no way limits the jurisdiction or power of the Court to make costs orders.
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Having accepted that evidence of the offer was not admissible, his Honour dismissed the defendant’s application for indemnity costs. His Honour then went on to make some obiter comments with respect to whether the offer, if admissible, would have formed the basis of an indemnity costs order. Firstly, his Honour indicated that where no formal Offer of Compromise is made, the Court will look at all the circumstances surrounding an offer to determine whether a plaintiff’s refusal of the offer was so unreasonable as to justify an indemnity costs order. Such circumstances include the length of time the offer was open and whether the offer expressly stated that it was made in Calderbank terms. Secondly, the fact that an offer is not in the precise form suggested in Calderbank v Calderbank, does not render it ineffective or inadmissible, however, it is critical that the letter indicates (either directly or by inference) that the offer will be relied on in connection with costs. Having set out these principles, his Honour stated that even if admissible, the defendant’s offer could not have justified an indemnity costs order because: • • • •
There was no evidence the offer at mediation was intended to operate as a Calderbank offer. Given the context of the mediation, the offer was not realistically open for a lengthy period of time. At the time of the offer the defendant’s evidence had not been served. The defendant amended its pleadings at trial i.e. after the offer had lapsed, to plead new issues.
Implications This decision removes any doubt that evidence of offers made at court referred mediations pursuant to s26 of the CPA are not admissible by reason of s30(4) of the CPA. Conversely it would appear that s30(4) offers no such protection to offers made at non-court referred mediations. In such circumstances, the parties would be well advised to make sure their mediation agreements deal with how offers made at the mediation are to be treated. In the obiter comments we also see some useful guidance as to the factors that will sway a court to award indemnity costs. In this regard it is critical to make sure that any Calderbank offer specifically mentions that the offer will be relied upon in relation to costs and that the offer is left open for a reasonable period of time having regard to the context in which the offer is put. Finally it should be noted that the state of the evidence and the pleadings at the time the offer is made will also be highly important in ultimately determining the reasonableness in rejecting an offer. In other words, a party who significantly “straps up” a case after putting an offer runs the risk of having the offer rendered ineffective from an indemnity costs point of view.
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Endnote 1
[2007] NSWSC 375
For more information, please contact: Alph Edwards Partner T: 02 8257 5703 alph.edwards@turkslegal.com.au
Roger Frare Lawyer T: 02 8257 5753 roger.frare@turkslegal.com.au
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