A recent Queensland Supreme Court decision, Artesian Hospitality Pty Ltd v Tsuen Fung Holdings Pty Ltd (No 2)  QSC 311, serves as a poignant reminder to carefully consider the implications of a Calderbank offer. Specifically, it examines the circumstances in which the refusal of a Calderbank offer is not unreasonable.
Calderbank Offer and Costs of a Proceeding
Costs of a proceeding are at the discretion of the court, however typically follow the event on a standard basis. That is, ordinarily the losing party will bear not only their own costs, but also the costs necessarily incurred by the successful party.
The making of a Calderbank offer is one circumstance in which the court might exercise its discretion to make an order different from the aforementioned “usual” order. A Calderbank offer is a “without prejudice” offer of settlement, whereby the issuing party reserves the right to refer to the offer in relation to costs. That is, if the judgment in the proceeding is less favourable to the other side than the Calderbank offer, the side making the offer may be entitled to an indemnity costs order.
However, just because a Calderbank offer to settle is not accepted, and the offeree ends up worse off than if the offer had been accepted, this does not automatically bring a different order as to costs. Rather, the critical question the court will ask in determining whether to exercise its discretion to award indemnity costs is whether the rejection of the offer was unreasonable in the circumstances.
Whilst is it not possible to formulate an exhaustive list, in determining whether a rejection of a Calderbank offer was unreasonable, the court will ordinarily have regard at least to the following matters:
- the stage of the proceeding at which the offer was received;
- the time allowed to the offeree to consider the offer;
- the extent of the compromise offered;
- the offeree’s prospects of success, assessed as at the date of the offer;
- the clarity with which the terms of the offer were expressed; and
(f) whether the offer foreshadowed an application for an indemnity costs in the event of the offeree rejecting it.
The proceeding in question was commenced by originating application filed 6 September 2021. The respondent filed its submissions and further reply submissions on 1 and 8 October respectively, while the applicant filed its submissions on 7 October.
On 30 September at 6.56pm, the respondent emailed a Calderbank offer to the applicant. Notably, at this time the parties had not exchanged submissions and, in the absence of pleadings, the issues to be determined at trial had not been specifically identified.
Subsequently, on 17 November 2021, the Court dismissed the amended originating application. The respondent, relying on the Calderbank offer, sought costs on the standard basis up to and including 1 October 2021, and on the indemnity basis thereafter.
His Honour Flanagan J found it was not appropriate to exercise the Court’s discretion to depart from the usual rule as to costs. Specifically, rejecting the respondent’s submissions that the applicant chose to ‘roll the dice’ in circumstances where it was appraised of the issues and prospects, his Honour accepted that the applicant’s case was ‘genuinely brought with a real prospect of it succeeding’. Noting that the precise issues in the proceedings were not identified until the parties had filed and delivered their submissions, which occurred after the issuance of the offer, Flanagan J found it was not unreasonable in the circumstances to refuse the Calderbank offer.
The Calderbank principle is underpinned by a policy objective which encourages the saving of private costs and the avoidance of risks, costs, delays and uncertainties of litigation. Importantly however, potential litigants should not be discouraged from bringing their disputes to the Courts. As demonstrated by this case, such competing considerations must be carefully deliberated both when issuing and receiving a Calderbank offer.
This article was written by Courtney Linton