Calderbank offers in SA: encouraging early settlement at all costs? By Flynn Wells

CALDERBANK OFFERS IN SOUTH AUSTRALIA: ENCOURAGING EARLY SETTLEMENT AT ALL COSTS?

FLYNN WELLS, LLB (HONS) CANDIDATE, UNIVERSITY OF ADELAIDE

The court exercises a broad discretion as to costs. 1 It may award costs on three bases: a standard party–party basis; a solicitor–client basis; and an indemnity basis. 2 The standard basis is only departed from in exceptional circumstances. 3 Pursuant to r 194.6 of the Uniform Civil Rules 2020 (SA) (UCR), 4 in exercising its discretion the court may have regard to ‘the non-acceptance by a party of an offer made by another party to resolve the proceeding’. 5 As such, the court may consider the non-acceptance of informal offers of settlement, 6 as distinguished from formal offers. 7

Informal offers are commonly made by ‘Calderbank letter’, 8 a letter of offer so named due to its origins in the case of Calderbank v Calderbank. 9 On the face of r 194.6, the non-acceptance of a Calderbank offer would appear to be one discretionary factor. There has been a ‘great deal of judicial consideration’, however, of the question as to whether the costs consequences of the non-acceptance of formal offers should also attach to the non-acceptance of Calderbank offers. 10 Indeed, there are authorities for the proposition that a party whose Calderbank offer was rejected unreasonably is presumptively entitled to an award of indemnity costs from the date of the offer. 11 The high water mark of this line of authority coincided with the decision of Rolfe J of the Supreme Court of New South Wales in Multicon Engineering Pty Ltd v Federal Airports Corporation (‘Multicon’). 12 Unlike courts in other Australian jurisdictions that have expressly departed from the presumptive approach, 13 the Supreme Court of South Australia has left undecided the question as to whether to adopt the presumptive approach on two occasions. 14 More recently, however, the Court appears to have expressed support for the presumptive approach. 15

This paper considers whether the presumption applies in South Australia. Such certainty is needed, as is highlighted by the following observation of Gino Dal Pont: ‘it is difficult to see how the same [costs] outcome will as of course ensue where a person is required to positively establish an entitlement to indemnity costs as compared to where his or her opponent must establish that indemnity costs should not be ordered’. 16 It is argued that the weight of South Australian authority supports the view that the unreasonable non-acceptance of a Calderbank offer is but one discretionary factor. 17 (This is referred to as the ‘discretionary approach’.) As such, a party whose Calderbank offer was rejected unreasonably is not presumptively entitled to an award of indemnity costs. This position is consistent with other Australian jurisdictions, 18 and is supported by policy considerations.

THE BOOM AND BUST OF THE PRESUMPTIVE APPROACH ACROSS AUSTRALIA

During the 1990s, it was observed that Australian courts had developed a tendency to award indemnity costs in favour of a party whose Calderbank offer had been unreasonably rejected. 19 Indemnity costs were ‘becoming more frequently available’ in this context. 20 One judge went so far as to say that ‘[i]t is plain enough that … the only sanction to encourage serious consideration of … [a Calderbank] offer … is an award of costs on a more favourable than usual basis. The most favourable basis is indemnity costs’. 21 It was from this tendency that the presumptive approach appears to have emerged. As was later observed, ‘[s] o widely has this [judicial predisposition] been accepted that the proposition has [even] been advanced that a Calderbank offer gives rise to a presumption that the party rejecting the offer should pay the offeror’s costs on an indemnity basis’. 22

In Multicon, a ‘significant’ decision for the law of costs, 23 Rolfe J gave the first judicial endorsement of the presumptive approach: In my opinion the proper approach to take to an offer … pursuant to a Calderbank letter, is that there should be a prima facie presumption in the event of the offer not being accepted and in the event of the recipient of the offer not receiving a result more favourable than the offer, that the party rejecting the offer should pay the costs of the other party on an indemnity basis from the date of the making of the offer. 24

His Honour held that the respondent had not rebutted the presumption by establishing that its non-acceptance was reasonable, 25 and awarded indemnity costs in favour of the applicant. 26

Although there remained some uncertainty regarding the state of the law post-Multicon, 27 which intensified following the Federal Court of Australia’s disapproval of the presumptive approach, 28 the decision of Rolfe J was approved by Gillard J of the Supreme Court of Victoria in MT Associates Pty Ltd v Aqua-Max Pty Ltd (‘MT Associates’). 29 In so holding, Gillard J hoped that ‘judges hereafter do not waste time in disagreeing [with the presumptive approach] on the ground that … [the presumption] fetters the [court’s] discretion’. 30 Multicon was also approved in Queensland and Western Australia. 31

Despite the best efforts of Gillard J in MT Associates, judges did indeed ‘waste time’ disagreeing with the presumptive approach thereafter. A shift to the discretionary approach is evident in several decisions, 32 which has led one author to suggest that ‘the historical divergence of authorities on the issue’ has ended. 33 The position in South Australia, however, is not so certain.

THE STORY IN SOUTH AUSTRALIA

Support for the Prima Facie Presumption?

The Supreme Court of South Australia considered the new direction taken by the authorities, exemplified by Multicon, in Pirrotta v Citibank Ltd (‘Pirrotta’). 34 Justice Debelle, with whom Millhouse

and Olsson JJ agreed, noted that ‘the effect of Calderbank letters [on costs] has not been examined in this Court’. 35 The first instance judge had proceeded on the basis that the presumptive approach represented the correct approach, but held that the presumption had been rebutted by the respondent. 36 On appeal, the appellants ‘submitted that the trial judge had acted upon a wrong principle’, and ‘that the principle was correctly expressed by Rolfe J in Multicon’. 37 This submission mischaracterised the approach of the trial judge, who had adopted Multicon, and Debelle J dismissed this ground of appeal. 38 As such, the question as to the status of Multicon in South Australia was left open. 39 In obiter, his Honour remarked that, until the issue was properly raised, the unreasonable rejection of a Calderbank offer should be regarded as one discretionary factor. 40 The question next arose in Equuscorp Pty Ltd v Jimenez [No 2]. 41 Justice Besanko held that the issue ‘was not fully argued’ by the parties, however, and consequently left it unresolved. 42 In the meantime, his Honour expressed support for ‘the approach adopted by the Full Court in Pirrotta’. 43

Multicon received its first positive judicial treatment in South Australia in Davies v Chicago Boot Co Pty Ltd [No 2] (‘Davies [No 2]’). 44 Justice Sulan referred to Multicon as the ‘starting position’, adding that ‘the making of an offer of compromise by a plaintiff who obtains a more favourable ultimate verdict will entitle the plaintiff to an order against the defendant for the plaintiff ’s costs on an indemnity basis’. 45 At this point, it may well have appeared that the law in South Australia was beginning to diverge from the discretionary consensus in other Australian jurisdictions. 46

BHP Billiton Ltd v Parker: Silence Is Golden

Just weeks after Sulan J’s endorsement of Multicon, the Full Court handed down the leading decision on the effect of Calderbank offers on costs in South Australia to date: BHP Billiton Ltd v Parker (‘Parker’). 47 The majority, comprising Doyle CJ and White J, ruled that

the question is not simply whether, having regard to a Calderbank letter, a court should order the defendant to pay costs on a basis other than as between party and party. The court will be exercising a broad discretion, and the making of an informal offer of settlement is merely one of a number of matters relevant to the exercise of that discretion. 48

Their Honours made no mention of Multicon or Davies [No 2], a deafening silence in light of the fact that Parker has since been approved on numerous occasions. 49

Perhaps the most consequential comments regarding the state of the law post-Parker came from Judge Lovell of the District Court of South Australia (as his Honour then was) in Cadoo v BHP Billiton Ltd: 50 ‘[t]he onus is on the party making a “Calderbank” offer to satisfy the court that it should exercise the discretion in its favour … The rejection of a “Calderbank” offer does not necessarily or even presumptively lead to an award of indemnity costs’. 51 His Honour’s dismissal of any such presumption is significant.

Notwithstanding that Multicon was recently applied in the District Court, 52 the decision of the Full Court of the Supreme Court remains authoritative. Thus, the rejection of a Calderbank offer is but one factor to be weighed by the court in the exercise of its broad and, importantly, unfettered discretion. 53 This position is consistent with other Australian jurisdictions, and has received support from the Australian Law Reform Commission. 54

CONCLUSION

The authorities advocating the presumptive approach placed considerable reliance upon the need to encourage the early settlement of disputes. 55 Justice Gillard demonstrated this reasoning in MT Associates when his Honour stated that ‘[i]n this day and age litigation in this court is expensive … [Lawyers] should be encouraged to reduce costs’, 56 then proceeding to endorse the presumptive approach. 57 It is argued, however, that it is undesirable for this policy to be pursued at all costs.

Another important policy consideration in civil litigation is party certainty, 58 which is undermined by the presumptive approach. Indeed, there is an important distinction between formal offers and Calderbank offers. A formal offer is filed and served, 59 thus recognisable by the offeree as carrying certain costs consequences should it be rejected and the offeree’s position is not bettered at judgment. 60 Calderbank offers, on the other hand, remain nebulous, despite efforts to distil their essential features. 61 Chief Justice Doyle and White J expressly contemplated this ambiguity in Parker when their Honours warned against using the term ‘Calderbank letter … as a term of art, as if such a letter is always of a particular kind’. 62

It has been suggested that a Calderbank offer will carry the header ‘without prejudice save as to costs’, 63 but even the determinativeness of this feature is arguable. Indeed, in Old v McInnes, 64 the New South Wales Court of Appeal considered the costs consequences of the unreasonable rejection of a letter lacking the necessary Calderbank header, but exchanged within a series of communications in the course of which a properly-headed Calderbank offer had also been exchanged. 65 In dissent, Beazley JA (as her Excellency then was) held that the defective offer could be taken into account in awarding costs, as if it were a Calderbank offer. 66 Her Honour articulated this form and substance approach extrajudicially, 67 adding that ‘different judges may interpret the same document in different ways’. 68

It is submitted, therefore, that it is undesirable to link the rejection of a Calderbank offer presumptively to an award of indemnity costs, lest party certainty be undermined. 69 On this basis, the discretionary approach of the Full Court in Parker is preferred. Indeed, ‘[t]here is only one immutable rule in relation to costs, and that is that there are no immutable rules’. 70 As such, a party whose Calderbank offer was rejected unreasonably is not presumptively entitled to an award of indemnity costs in South Australia. This is but one discretionary factor to be weighed by the court under r 194.6 of the UCR. B

Endnotes 1 BHP Billiton Ltd v Parker (2012) 113 SASR 206, 265 [265] (Doyle CJ and White J) (‘Parker’). See

Uniform Civil Rules 2020 (SA) r 194.1(1) (‘UCR’). 2 UCR (n 1) r 194.3(1). 3 See, eg, Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225, 233 (Sheppard J), cited in

Duke Group Ltd (in liq) v Pilmer [1998] SASC 6699 (Mullighan J). See also LexisNexis, Civil

Procedure South Australia (online at 15 May 2020) [R 264.85]. 4 The UCR entered into force on 18 May 2020:

UCR (n 1) r 1.2; South Australia, Government

Gazette, No 41, 18 May 2020, 1392. 5 UCR (n 1) r 194.6(2)(e) (emphasis added). 6 Parker (n 1) 265 [264]. See also Grbavac v Hart [1997] 1 VR 154, 165 (Hayne JA). 7 See UCR (n 1) ch 11 pt 2. Subject to its

‘overriding discretion’, the court will, as a matter of course, award costs on an indemnity basis against a party who rejected a formal offer and did not receive a more favourable result at judgment: ibid r 132.10. 8 Matthew Ellis, ‘The Cost of Compromising: Offers of Compromise and Calderbank Offers’ (2008) 17(4) Journal of Judicial Administration 253, 253. 9 [1976] Fam 93. 10 Ellis (n 8) 264. 11 See, eg, Multicon Engineering Pty Ltd v Federal

Airports Corporation (1997) 138 ALR 425, 451 (‘Multicon’). A rejection will be ‘unreasonable’ where the offeree does not receive a more favourable result at judgment: ibid. See also Gino

Dal Pont, Law of Costs (LexisNexis Butterworths, 4 th ed, 2018) 428 [13.74]. 12 (1997) 138 ALR 425. 13 MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd [No 2] (1996) 70 FCR 236, 240 (Lindgren J) (‘MGICA [No 2]’); Jones v Bradley [No 2] [2003]

NSWCA 258, [9] (Meagher, Beazley and Santow

JJA) (‘Jones [No 2]’); Hazeldene’s Chicken Farm Pty

Ltd v Victorian Workcover Authority [No 2] (2005) 13 VR 435, 440–1 (Warren CJ, Maxwell P and

Harper AJA) (‘Hazeldene’s Chicken Farm [No 2]’). 14 Pirrotta v Citibank Ltd (1998) 72 SASR 259, 266 (Debelle J, Millhouse J and Olsson J agreeing at 260) (‘Pirrotta’); Equuscorp Pty Ltd v Jimenez [No 2] [2002] SASC 266, [17]–[19] (Besanko J) (‘Jimenez [No 2]’). 15 Davies v Chicago Boot Co Pty Ltd [No 2] [2011]

SASC 97, [26] (Sulan J) (‘Davies [No 2]’), cited in David Jones Ltd v BI (Contracting) Pty Ltd [2018]

SADC 40, [17] (Judge Gilchrist) (‘David Jones’). 16 Dal Pont (n 11) 427–8 [13.73] (emphasis in original). Cf Interchase Corporation Ltd v ACN 010 087 573 Pty Ltd (2000) 45 ATR 445, 452 (White

J); ACCC v Universal Music Australia Pty Ltd [No 2] (2002) 201 ALR 618, 631 [59] (Hill J). 17 Parker (n 1) 265 [265] (Doyle CJ and White J). 18 MGICA [No 2] (n 13) 240; Jones [No 2] (n 13) [9];

Hazeldene’s Chicken Farm [No 2] (n 13) 440–1. 19 Ellis (n 8) 266. 20 Huntsman Chemical Co Australia Ltd v International

Pools Australia Ltd (1995) 36 NSWLR 242, 250 (Mahoney JA). 21 Quirk v Bawden (1992) 112 ACTR 1, 5 (Higgins J,

Miles CJ and Gallop J agreeing at 2) (emphasis added). 22 Hazeldene’s Chicken Farm [No 2] (n 13) 440 (Warren CJ, Maxwell P and Harper AJA). See also Multicon (n 11) 441–51. 23 Pamela Jack, ‘Calderbank Offer: Indemnity

Costs’ (1997) 53 Australian Construction Law

Newsletter 51, 51. 24 Multicon (n 11) 451. 25 Ibid 453. 26 Ibid 454. 27 Ellis (n 8) 265. 28 MGICA [No 2] (n 13) 240 (Lindgren J). 29 [2000] VSC 163, [71] (‘MT Associates’). 30 Ibid. 31 Naomi Marble and Granite Pty Ltd v FAI General

Insurance Co Ltd [No 2] (1999) 1 Qd R 518, 524–8 (Shepherdson J); Alpine Holdings Pty Ltd v

Warwick Entertainment Centre Pty Ltd [2003] WASC 53, [73]–[74] (Roberts-Smith J). 32 Jones [No 2] (n 13) [9]; Hazeldene’s Chicken Farm [No 2] (n 13) 440–1. See also SMEC Testing

Services Pty Ltd v Campbelltown City Council [2000]

NSWCA 323, [37] (Giles JA). 33 Ellis (n 8) 265. See also Dal Pont (n 11) 427 [13.73]; Justice of Appeal Margaret Beazley,

‘Calderbank Offers’ [2009] (Summer) Bar News 65, 66. 34 (1998) 72 SASR 259. 35 Pirrotta (n 14) 262 (emphasis added). 36 Ibid 262. 37 Ibid. 38 Ibid. 39 Ibid 265. 40 Ibid 266. 41 [2002] SASC 266. 42 Jimenez [No 2] (n 14) [17]–[19]. 43 Ibid [19]. 44 [2011] SASC 97. 45 Davies [No 2] (n 15) [26] (emphasis added). 46 See above n 32 and accompanying text. 47 (2012) 113 SASR 206. 48 Parker (n 1) 265 [265] (Doyle CJ and White J,

Gray J reserving costs at 298 [429]). 49 See, eg, McLean v DID Piling Pty Ltd [No 2] [2014]

SASC 135, [22] (Nicholson J); Enartis Pacifi c

Pty Ltd v Tscharke Pty Ltd [2015] SASC 42, [28] (Nicholson J); Cadoo v BHP Billiton Ltd [2014]

SADC 42, [16] (Judge Lovell) (‘Cadoo’); De Poi

Consulting Pty Ltd v Dutton [No 2] [2015] SADC 111, [22] (Judge Tilmouth). 50 [2014] SADC 42. 51 Cadoo (n 49) [11]. 52 David Jones Ltd v BI (Contracting) Pty Ltd [2018]

SADC 40, [17] (Judge Gilchrist), citing Davies (n 15) [26]. 53 Parker (n 1) 265 [265]; Cadoo (n 49) [12]. 54 Australian Law Reform Commission, ‘Costs

Shifting: Who Pays for Litigation?’ (Report No 75, 20 October 1995) [11.32]. 55 Multicon (n 11) 440; MT Assocites (n 29) [73]. 56 MT Assocites (n 29) [73]. 57 Ibid [71]. 58 See, eg, Aon Risk Management Services Australia Ltd v Australian National University (2009) 239 CLR 175, 192 [30] (French CJ), cited in Channel Seven

Adelaide Pty Ltd v Manock [2010] SASCFC 59, [46] (Bleby J, White J agreeing at [174]). 59 UCR (n 1) rr 132.4(1)–(2). 60 Ibid r 132.10. 61 See, eg, Mark J Rankin, ‘Calderbank Letters and

Formal Settlement Offers: Is the Calderbank

Offer a Dead Letter?’ (2010) 21(4) Australian

Dispute Resolution Journal 242. See also Dal Pont (n 11) 425 [13.70]. 62 Parker (n 1) 265 [264] (emphasis added). 63 See, eg, Ellis (n 8) 265. It is also common to state that the offer is made ‘pursuant to the principles in Calderbank v Calderbank’: Dal Pont (n 11) 425 [13.70]. 64 [2011] NSWCA 410. 65 Ibid [12]–[20] (Beazley JA). 66 Ibid [20]–[21]. 67 Justice of Appeal Margaret Beazley, ‘“Without

Prejudice” Offers and Offers of Compromise’ (Speech, NSW Young Lawyers Civil Litigation

Committee, 26 September 2012) [30]. See also Singapore Airlines Cargo Pte Ltd v Principle

International Pty Ltd [No 2] [2017] NSWCA 340, [40] (Beazley P, Meagher and Payne JJA);

Secretary, Department of Business and Innovation v

Murdesk Investments Pty Ltd [No 2] [2012] VSC 586, [31] (Emerton J). 68 Beazley, ‘“Without Prejudice” Offers and Offers of Compromise’ (n 67) [31]. 69 See Old v McInnes (n 64) [106]–[107] (Meagher

JA, Giles JA agreeing at [42]). 70 Taylor v Pace Developments Ltd [1991] BCC 406, 408 (Lloyd LJ), cited in Solowij v Parish of St

Michael [No 2] [2003] SASC 48, [15] (Williams J).