Settlement offers: Are you being

Settlement offers: Are you being reasonable?

EDWARD MORCOMBE, ASSOCIATE, FINLAYSONS LAWYERS

In 1415 CE, Henry V of England was busily preparing to invade France, a campaign that would result in the infamous English victory at the battle of Agincourt.

On the eve of the English armada’s departure, Henry V made a final settlement offer, ‘call[ing] to witness in conscience the Supreme Judge…that, in our zeal for peace, we have tried every way possible to obtain peace’. The French did not accept his offer, however Henry V continued to make further offers of compromise as the campaign progressed.

Henry V was pragmatic, methodical, attentive to detail and a skilled tactician. One of the primary motivations behind his last minute, seemingly futile offers of settlement was simple. It was important that the public, both at home in England and abroad, should think that his war was reasonable and justified so that their support for it would be maintained.

The underlying rationale and utility of settlement offers in legal proceedings bear a striking resemblance to those made as a precursor to warfare. For modern litigants, it is the Court or Tribunal, charged with the discretion to award legal costs upon the conclusion of proceedings, to whom it is advantageous to present oneself as reasonable, as having resorted to a contested trial as a last resort and only because of the other side’s unreasonableness in refusing to settle.

Most litigants will have at least some passing familiarity with the principles of Calderbank v Calderbank [1976] Fam 93, whereby if a party to litigation makes a settlement offer that is rejected, and the offeror then obtains a more favourable judgement than the terms of the settlement offer would have provided, the Court may award the offeror their costs on an indemnity basis. The civil procedure rules in place in various jurisdictions also provide for similar treatment (see, for example, Rule 25.14 of the Federal Court Rules 2011).

The Federal Court of Australia’s recent costs determination in Palmer v McGowan (No 6) [2022] FCA 927 (Palmer v McGowan (No 6)) provides a useful reminder of how the Court will apply these principles, particularly in cases where there are multiple claims and where there is not a clear cut, purely economic basis on which to assess whether or not a settlement offer has been bettered at trial.

Palmer v McGowan (No 6) relates to the cost argument which followed the substantive determination of the defamation proceedings between Clive Palmer and the Western Australian premier, Mark McGowan. Mr Palmer commenced proceedings against Mr McGowan in respect of statements made by Mr McGowan regarding, broadly, Mr Palmer’s attitudes to Western Australia’s public health measures implemented in response to Covid-19, Covid-19 treatments and the ongoing mining rights dispute between Mr Palmer and Western Australia. Mr McGowan, in response, filed a cross-claim against Mr Palmer in respect of statements made by Mr Palmer regarding, broadly, Mr McGowan’s role in the institution of Western Australia’s public health measures in response to Covid-19 and granting of mining rights in Western Australia.

Both Mr Palmer’s claim and Mr McGowan’s cross-claim succeeded at trial, however each was awarded damages that were in ‘glaring disproportion’ to the costs expended on the litigation, being $5,000 awarded to Mr Palmer and $20,000 awarded to Mr McGowan. The issue of how an award for costs, if any, was to be dealt with accordingly took on increased significance.

In Palmer v McGowan (No 6), the Court heard that Mr McGowan made an offer of compromise to Mr Palmer for both parties to discontinue their claims against each other and bear their own costs incurred to date (Offer). The Offer, if accepted, would have saved the costs of intensive preparation for, and conduct of, the trial.

On a purely economic basis, Mr McGowan had achieved a more favourable judgement than the Offer would have provided, as he was awarded net damages of $15,000 (being $20,000, less $5,000 awarded to Mr Palmer). Mr Palmer, on the other hand, had secured a less favourable economic outcome than the Offer.

The Court noted, however, that an assessment of what state of affairs is more or less favourable is ‘a matter of substance’, and not necessarily confined to a purely economic analysis. In this case, while Mr Palmer had secured a less economically favourable outcome than the Offer provided, in proceeding to trial and succeeding in his claim Mr Palmer had secured the non-economic benefit of the Court’s recognition that he had been defamed.

Ultimately the Court ordered Mr Palmer to pay Mr McGowan’s costs of the cross-claim (limited to those costs incurred from the second business day after the Offer was made) on a party / party basis. The Court therefore did not simply adopt a global view that Mr McGowan should

be indemnified for his costs because Mr McGowan had obtained a more favourable outcome than the Offer. The Court noted that regardless of the favourability of the Offer as compared to the judgement, the Court would not award Mr McGowan any costs in respect of his defence of Mr Palmer’s claim, given Mr Palmer’s success in that claim.

However, despite Mr Palmer’s success in his defamation claim, the Court decided to deviate from the general position of awarding costs in favour of a successful party by making no order as to Mr Palmer’s costs. This decision was clearly informed by the Offer, in conjunction with the Court’s assessment of the reasonableness of the conduct of the parties generally.

The Court’s comments on how the overall conduct of both parties informed its costs determination provide guidance to all litigants is wishing to minimise their potential costs exposure. It is important to note, however, that the Court placed greater emphasis on the parties’ broader conduct, as opposed to the parties’ conduct specifically in connection with the Offer, because the context of the parties’ non-economic motivations for maintaining the defamation proceedings rendered a purely economic comparison between the Offer and the judgement impossible.

The Court formed the view that Mr Palmer’s conduct had been more unreasonable than Mr McGowan’s, which in turn affected Mr Palmer’s ability to recover his costs, as: • the proceedings as a whole were wasteful, in the sense that they were unnecessary, disproportionate and diverted resources of the

Commonwealth and the Court from more pressing and important matters; • while Mr McGowan had filed a cross-claim that added to the scope of the proceedings, the cross-claim was defensive. The Court was satisfied that the subject matter of the crossclaim would not have been agitated if Mr Palmer had not first sued Mr

McGowan. Mr Palmer therefore bore greater responsibility for the institution of the proceedings as a whole; • the Offer constituted a ‘sensible’ outcome, and would have saved extensive costs by averting the need for a trial; • while ‘[b]oth men went too far in their political jousting, and both men litigated’,

Mr Palmer’s refusal to engage with the

Offer whatsoever indicated that ‘only one was willing to draw back and avoid a long and costly hearing’; and • Mr Palmer could have made a counteroffer, such as an offer for the entry of a judgment in favour of

Mr Palmer but without the payment of any damages, however he did not do so. While Mr Palmer’s conduct in rejecting the Offer was not necessarily unreasonable, given the Offer would not have secured Mr Palmer’s desired vindication, Mr Palmer’s overall conduct was nevertheless unreasonable.

The following key takeaways, of relevance to all parties to litigation and the legal industry, can be drawn from Palmer v McGowan (No 6): • it is rarely too late to contemplate making a settlement offer, and to

benefit from an earlier settlement or a favourable costs determination; • a purely economic analysis is not always the sole determinant of whether a judgement has been obtained that is more or less favourable than a prior offer; • aside from the content and timing of settlement offers, where appropriate the Court can look at the broader roles and conduct of parties to litigation to assess their reasonableness and factor this into its costs determination.

Parties should therefore consider the reasonableness of their conduct in proceedings holistically; • failing to engage with settlement offers made by the other side can be an adverse factor in determining costs entitlements, as it does not indicate reasonableness on the part of the aloof party; • the unlikelihood of the other side accepting proposed terms of settlement is not an excuse for the unreasonableness of failing to make an offer; and • running unmeritorious arguments at trial can be an adverse factor in determining costs entitlements.

Taking the above into account, even if Mr Palmer, like Henry V in 1415, was committed to charging onwards to secure his rights, and even if Mr McGowan was unlikely to accept an offer for the entry of a judgment in favour of Mr Palmer without the payment of any damages, it is nonetheless likely that Mr Palmer would have secured some costs protection simply by making a show of reasonableness in putting such an offer forward. B