In Western Australian litigation, indemnity costs may be awarded in certain circumstances when a Calderbank offer has not been accepted.
Calderbank offers are settlement offers made outside of court that, if rejected unreasonably, can lead to an order for indemnity costs.
This blog post explores the principles governing the exercise of the court's discretion to make such an award, drawing on the case of Middendorp v Lygina (No 2) [2021] WASC 431 (S).
Principles Governing Indemnity Costs in Relation to Calderbank Offers
As established in Ford Motor Company of Australia Ltd v Lo Presti [2009] WASCA 115 and summarized in Eccles v Koolan Iron Ore Pty Ltd (No 3) [2013] WASC 418 (S), there are several principles that apply when determining whether a Calderbank offer justifies an award of indemnity costs:
1. A Calderbank offer will not justify an award of indemnity costs unless its rejection was unreasonable.
2. All relevant facts and circumstances must be considered in determining whether a party's rejection of a Calderbank offer was unreasonable.
3. The mere fact that the recipient of a Calderbank offer is ultimately worse off than he or she would have been had the offer been accepted does not mean its rejection was unreasonable.
4. Whether conduct is reasonable or unreasonable always involves matters of judgment and impression.
5. It is not possible nor desirable to enumerate exhaustively all circumstances which must be taken into account in deciding whether the rejection of a Calderbank offer was unreasonable, but ordinarily, regard should be had to factors such as:
the stage of the proceeding in 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,
the clarity with which the terms of the offer were expressed, and
whether the offer foreshadowed an application for indemnity costs in the event of the offeree's rejecting it.
6. The party who makes a Calderbank offer that is rejected bears the onus of satisfying the court that it should make an award of indemnity costs in his or her favor.
7. The standard for awarding indemnity costs should not be allowed to diminish to the extent that an unsuccessful party will be at risk of an order for costs assessed on an indemnity basis absent some blameworthy conduct on its part - a test of unreasonableness should not be upheld on other than clear grounds. (Put another way, the standard for awarding indemnity costs should be maintained at a level where an unsuccessful party is not at risk of being ordered to pay costs assessed on an indemnity basis without engaging in some form of blameworthy conduct. A finding of unreasonableness should only be based on clear and compelling grounds, rather than being applied too easily or casually).
Assessment of Calderbank Offers
As reiterated in Strzelecki Holdings Pty Ltd v Jorgensen, Calderbank offers must be assessed without the benefit of hindsight and having regard to the strength of the parties' cases as they then stood.
A party's erroneous prediction about the prospects of litigation, on the basis of which they reject a Calderbank offer, may not be regarded as unreasonable if that party was not, at the time, and for good reason, in possession of sufficient information to make a proper assessment of its prospects, or if the circumstances upon which the assessment was based later changed.
Additionally, the terms of a Calderbank offer must be unambiguous, and it will not be unreasonable to reject an offer if there is some reasonable doubt about the nature and extent of what was being offered.
Case Example: Middendorp v Lygina (No 2) [2021] WASC 431 (S)
In this case, the court found that an order for indemnity costs (for a part of the costs) was justified due to the unreasonable rejection of a Calderbank offer.
The court considered factors such as the late stage of the proceeding, the defendant's prospects of success, the short timeframe for acceptance, the extent of the compromise offered, the clarity of the offer's terms, and the fact that the offer foreshadowed an application for indemnity costs in the event of rejection.
The court also noted that the unsuccessful party had not provided a reason for not accepting the offer beyond the usual prospects of being successful in litigation, which further justified the indemnity costs order.
Key Take-Aways
Indemnity costs may be awarded in relation to a Calderbank offer if the rejection of the offer is found to be unreasonable.
The court will consider various factors to determine whether the rejection was unreasonable, such as the stage of the proceeding, the time allowed for consideration, the extent of the compromise offered, the offeree's prospects of success, the clarity of the terms, and whether the offer foreshadowed an application for indemnity costs in the event of rejection.
It is essential for legal practitioners to carefully consider the principles outlined above when advising clients on the potential consequences of rejecting a Calderbank offer, as an unreasonable rejection may lead to an indemnity costs order against their client.