Calderbank offers – Getting more bang for your buck

by DLA Piper

The cost-protective benefits of Calderbank offers are often more illusory than real. Courts will only award indemnity costs to the party making the offer where the party demonstrates that it was unreasonable for the other party to not accept the offer. Where the outcome at trial is dependent on the proof of facts by witness testimony or the resolution of differences of expert opinion, a party seeking indemnity costs will generally be challenged to demonstrate that the recipient’s decision not to accept the offer was unreasonable.

The High Court of Australia’s decision last week in Stewart v Atco Controls Pty Ltd (in Liquidation) (No 2) [2014] HCA 31 highlights that demonstrating unreasonableness is significantly easier where the issues between the parties are focussed on disputes involving the application of existing law than the proof of particular facts. In that case, the dispute between the parties involved the reasonably narrow issue of whether the liquidator of Newtronics Pty Ltd was entitled to an equitable lien over a fund in the liquidation for the costs and charges he had incurred in obtaining that fund through proceedings he had brought against someone else. The Supreme Court of Victoria held that the principle in Re Universal Distributing Co Ltd (In Liq) [1933] HCA 2 applied and that the liquidator was entitled to an equitable lien.

Atco Controls Pty Ltd, which disputed the existence of the lien and asserted a claim to the fund, appealed the Supreme Court’s decision to the Victorian Court of Appeal. Prior to the appeal hearing, the liquidator made a Calderbank offer to Atco. The offer proposed that Atco abandon its claim to the fund and abandon the appeal, in exchange for which the liquidator would not pursue his costs of the original Supreme Court action or his costs of the appeal. Atco did not accept this offer. Atco then went on to be successful in its appeal.

The liquidator appealed the Court of Appeal’s decision to the High Court. The High Court confirmed that the liquidator was entitled to the lien on the basis of the principle in Universal Distributing, allowed the appeal and set aside the Court of Appeal’s decision.

The liquidator sought his costs in both the Court of Appeal and the High Court against Atco on an indemnity basis. His application was founded on Atco’s rejection of his Calderbank offer prior to the Court of Appeal hearing.

When considering the liquidator’s application for indemnity costs, the High Court noted that the application of principle in Universal Distributing to liquidators was not novel. Atco needed to distinguish this principle in order to succeed in its claim, but failed in its attempt. In light of this, the High Court found that Atco’s non-acceptance of the liquidator’s Calderbank offer was not reasonable. It therefore ordered Atco to pay the liquidator’s costs of the appeal to the Court of Appeal on an indemnity basis.

The application for indemnity costs in the High Court was approached differently. This was because the Calderbank offer was not open for acceptance during the course of the High Court appeal. Atco had therefore not failed to do anything during the High Court proceedings that warranted an order for indemnity costs being made in those proceedings.

The High Court’s decision highlights the ease of seeking indemnity costs in a dispute that involves the application of established law to agreed or non-contentious facts as opposed to disputes where the outcome is dependent on testing evidence at trial. It also emphasises the need for parties to remain alert for settlement opportunities throughout the course of multi-stage litigation. Calderbank offers should be considered at all stages of court proceedings, not just at one point. Offers should be made in connection with appeals as well as trials. They should also be made as the litigation develops and a particular party’s position demonstrably strengthens or weakens: the non-acceptance of a Calderbank offer early in proceedings might be reasonable on the limited information available at the time, yet the non-acceptance of an offer made on the same terms later in the proceedings may not be reasonable in the light of additional information disclosed between the parties during the intervening period.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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