Calderbank offers; Sanelli v Sanelli & Anor [2010] VSC 78 (17 March 2010), O’Reilly v TS & B Retail Systems Pty Ltd [2010] VSCA 47 (18 March 2010) & Tenth Vandy Pty Ltd v Natwest Markets Australia Pty Ltd (No 2) [2010] VSC 70 (12 March 2010)

March 22, 2010 |

Its raining Calderbank offers!  In three separate and unrelated decisions last week  the Supreme Court considered both the body of relaw relating to Calderbank Offers and their application to the facts.

Sanelli v Sanelli & Anor

Mukhtar AsJ in Sanelli considered a very full throated application by the plaintiff for indemnity costs.  At [29] Mukhtar AsJ set out the broad principles

29 An order for indemnity costs is a departure from the Court’s usual course and special circumstances must be shown. In my experience, applications for such orders are increasing in modern litigation but overall they are difficult to obtain, certainly in borderline cases. Great care must be taken in reaching a conclusion at the urging of a victorious litigant that the losing litigant somehow conducted itself delinquently as litigant so as to attract an indemnity order, as if it were an expression of the Court’s admonition. Such an order may be made where proceedings are commenced or continued in wilful disregard of known facts or clearly established law, or where there is undue prolongation of a case by groundless claims, or conduct of proceedings for an ulterior motive, or where a litigant acts dishonestly in the litigation or flouts or abuses rights and privileges. They tend to be cases where a Court might think that a litigant properly advised had no hope of success and therefore must be taken to have proceeded for some illicit motive or chosen to wilfully disregard the law. That would require a strong finding to sustain a judicially exercised discretion.

The Plaintiff claimed indemnity costs arguing that the second defendant never had a case [2], more technically described wilful disregard of the law, and a Calderbank letter where the Plaintff offered to bear her own costs if the second defendant would consent to monies held in Court being released to her.  The second defendant, notwithstanding withdrawing its defence 5 days from the scheduled commencement of the trial date argued that there should be no order as to costs because of the Plaintiff’ obstructionist behaviour.  The plaintiff’s claim was grounded on the equity of exoneration (usefully described at [23] – [27]) however the Plaintiff did not plead her case in those terms until approximately half way through the proceeding.  Mukhtar did not regard the extensive discovery and enquiry as being evidence of a lack of a defence.  Similarly he regarded some of the defences as being dubious.  Against this he noted that the ultimately successful claim was formulated lateish in the piece [34].  His Honour in analysing whether the rejection of the offer was unreasonable in the circumstances noted that the Calderbank offer was made 2 months before the Plaintiff amended her claim and at the time the offer was made the second defendant still had not “.. had all the relevant objective material to enable a litigator to give definite advice, or at least could say to their client that they had exhausted all means to dutifully investigate the case.” [40].  Timing of an offer an offer  is critical in determining the reasonableness in rejecting it.

O’Reilly v TS & B Retail Systems Pty Ltd

This was an appeal regarding a costs ruling made at the conclusion of a County Court trial.  The Court set out in some detail the exchange of offers and related correspondence.  A Defendant’s offer was made on Friday 16 May 2009 and left open until 5pm Monday 19 May 2009.  The plaintiff rejected that offer just before noon on 19 May and made a counter offer, leaving it open until 5pm the next day.  The court noted the very short period within which the offers were left open but regarded it as significant that even with such a short time frame the Plaintiff was sure enough  to reject the defendant’s offer with 6 hours to spare. The trial judge found it was unreasonable to reject the 16 May offer.  The Court approved of the trial judge’s analysis, recounted at [31],  including the haste of the Plaintiff’s response without properly considering the risks. The Court also highlighted the fact, at [20], that “..An order for indemnity costs does not entitle the party in whose favour it is made to recover whatever sums he incurs. Costs incurred unreasonably are not recoverable, nor are those of an unreasonable amount.”  The Plaintiff’s figures lacked credibility. It is very important for the offeree to be as temperate and resaonable as possible in any correspondence and couteroffers.

Tenth Vandy Pty Ltd v Natwest Markets Australia Pty Ltd (No 2)

As is his wont Croft J undertook a very detailed analysis of the operation of Order 26 [12] – [16],  Calderbank offers [17] – [20] and orders for non party costs [40] – [53].

Croft cited the factors of reasonableness set out in Hazeldne’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2):

(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.

His Honour made the point that in exercising its discretion it must judge the conduct of the offeree at the time of the offer but not with the benefit of hindsight.  To that end his Honour considered the offers in the context of the stage of the litigation process.  The authorities make it clear there is no rule requiring the maker of an offer to set out the reasons why the offer should be accepted.  It depends upon the circumstances.  In Tenth Vandy the Court did consider the analysis set out in the various Calderbank offers.  In his considerations the Court also noted the intemperate and “quite ridiculous offers to settle with the defendants on payment of sums in the millions of dollars..” [38]. The Court found that the plaintiff’s correspondence indicates that it was not behaving reasonably. Interestingly the Court in O’Reilly referred to some quite pungent correspondence. All the more reason for an author to remove as much emotion from correspondence as possible.  In considering the reasonableness of the refusal one should assume a court will be unimpressed by an offeree making serious allegations of misconduct or allegations relating to the proceeding unless it is relevant to the offer.

The Court ordered costs against a non party in this case.  It is an unusual order to make.  The basis for making an order was set out in [51] where Croft J said:

51 The jurisdiction to award costs against a non-party is not enlivened unless the non-party has a sufficient connection to the proceeding.  Elaborating on this requirement, and by reference to Burns Philp & Co v Bhagat, Bischof v Adams and also Guss v Geelong Building Society (in liq), Ashley J said:

“The Court’s power to award costs under s 24(1) of the Supreme Court Act is wide enough to order that costs be paid by a non-party. Focussing upon the general situation – that is, putting the circumstances raised by r.6323 to one side – it may be said that such an order is always exceptional. In the vast majority of cases it would be unjust to make an award of costs against a non-party. It may also be said that whilst certain categories of persons have been identified as persons against whom such orders may be made, the Court’s discretion is not confined to those categories of persons. A further proposition may be put, that is, that a non-party against whom an order is made must have a connection with the proceeding in question. Gobbo J dealt with the matter of connection in Bischof. His Honour concluded that in the exercise of the discretion it would be pertinent to take into account the extent of the connection between the non-party and the proceeding and the causal connection between the third party and the costs. His Honour pointed out, correctly in my respectful opinion, that in some cases the connection between the non-party and the proceeding may be slender, but there may be a close relationship between the non-party and costs (or increased costs) incurred. At the other extreme it may be that the non-party stands to benefit greatly from a proceeding, but may not have had any real part in supporting the proceeding, and so any real part in the incidence of costs.”

The court made the connection between the natural person and Tenth Vandy, his corporate vehicle, in the conduct of the litigation and incurring of costs by the defendant.  The Court was satisfied that the natural person was in effect the driving force behind the litigation and he had personal interest in the outcome.  It should be noted that just being a director is not a basis for a non party costs order. There must be a significant connection to the proceeding.

Interestingly, while  the Court made the non party jointly and severably liable for the costs the  non party’ s liability “…should be subject to the proviso that the liability … is not to arise unless and until the plaintiff fails to meet its obligations to pay the defendant’s costs” [56].  Such an order is indicative on the conservative approach of the Courts to make non party costs orders.

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