In September Croft J found for the Defendant in Auswest Timbers v Secretary to the Department of Sustainability. Last Monday in Auswest Timbers Pty Ltd v Secretary to the Department of Sustainability & Environment (No 2) [2010] VSC 513 Croft J considered the costs issues in this proceeding, specifically the operation of Calderbank offers and the appropriate costs orders where it is alleged that a case was hopeless or there was no chance of success from the outset.

Calderbank offers

Croft J undertook a very thorough analysis of the operation of a Calderbank offer, extracting the key reasoning in the touchstone case, Hazeldene’s Chicken Farm,  including the rationale underpinning such offers ([11]) and the relevant factors to be weighed in deciding whether the rejection of a Calderbank offer is unreasonable ([12]). It is relevant to set out the  now ubiquitous factors relevant in consideration of whether the rejection of a Calderbank offer was unreasonable:

(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.

The discrete issue for consideration here was as to when the effect of a Calderbank offer commences; from the date of service of the offer or upon the date the offer expired. Under Rule 26.08 the costs consequences of an effective Offer of Compromise takes effect on the date it was served. A key differece between formal offers of compromise and Calderbank offers is the discretion available to the court in the latter case.  Croft J stated, at [14]:

Unlike the regime for costs consequences for offers of compromise under Order 26 of the Rules, the Court has discretion to decide when the costs consequences of a Calderbank offer commence.

Croft J, referring to similar rulings in Love v State of Victoria & Anor and  Foster v Galea (No. 2) held that the cost consequences of a successful Calderbank offer commenced on the date of expiry of the offer.  A separate factor which he regarded as relevant in the exercise of the discretion was the relative lateness of the offer, stating at [16]:

Additionally, regard should be had to the circumstances that it was the defendant which chose, at the “eleventh hour” to make the offer, in a proceeding issued in 2004. The defendant had in the timing of its offer itself created the possibility that if it succeeded at trial and the offer was not accepted within the time expressly limited the trial preparation costs would not be treated on a special basis.

Costs where  a claim may be regarded as without merit

His Honour stressed that the usual costs order is that the successful party be awarded costs on a party and party basis (see [7]) but , at [8] – [10], there was scope for the court exercise its discretion and make a special costs order where a proceeding had  no prospects of success.   His Honour makes it clear that such orders are  rare and the bar is set high; it needs to have been a hopeless case on the uncontroverted facts.  The Defendant submitted that the effect of the statutory defences pleaded, which was the basis upon which it succeeded at trial, and the known facts were such that the Plaintiff’s commencement and maintenance of the action was clearly unreasonable (see [17] – [21]). The Plaintiff contended that ultimately the deciding factor was preference by the court of the Defendant’s witnesses over those of the Plaintiff.  Accordingly the issue was not one of known facts but rather contested facts, requiring specific findings by the court.  His Honour agreed with the Plaintiff’s submission, stating at [22]:

…If I had accepted the evidence of the plaintiff’s witnesses, the plaintiff may have been able to prove reliance on the representations. The plaintiff’s case on the issue of reliance did fail, but it did not reach the high threshold of having no chance of success, or of being hopeless, so that a special costs order should be considered.

In this proceeding another factor, though not a decisive one, weighing against the Defendant obtaining such a costs order was that it had declined to have the court deal with the pleaded statutory defence as a preliminary legal point when given the opportunity  to do so.  It  preferred to have factual issues considered by the court together with the legal issues. The obvious inference was that the statutory defences were not decisive in and of themselves.

Issues

Based on his Honour’s consideration of the authorities on point, the likely commencement of a special cost orders consequent upon a successful Calderbank offer is the date of expiry of the offer.  That  said it is always a matter of discretion, a factor not available under the rules governing offers of compromise.