Calderbank offers

A Calderbank offer is a powerful tool in commercial litigation. It is the recognised practice of making a “without prejudice” offer but reserving the right to refer to the offer in relation to costs.

Commercial litigation differs on a case-by-case basis. The circumstances leading to a dispute will differ and so will the facts. However, one thing that remains consistent is the cost to fund litigation. It is extremely expensive to fund legal disputes as the ongoing costs can add up very quickly, court hearings can go for weeks on end and as a result parties may sometimes struggle to pay. Therefore, it is extremely common that most legal disputes settle well and truly before they proceed to trial by offering a settlement via a Calderbank letter.

Calderbank offers originated from the decision in Calderbank v Calderbank [1975] 3 All ER 333 establishing the legal principle. It is simply putting the other party in the dispute on notice that, if a judgment in the proceeding is less favourable to the other party, then it can influence how the court determines who should pay costs.

A Calderbank offer requires the following elements:

  1. The offer must be made on a “without prejudice save as to costs” basis
  2. The offer is clear, precise, and certain (Kemp v Ryan [2012] ACTCA 12)
  3. The offer must state the time in which the offer must be accepted, and the offer must give a reasonable time for acceptance (Meldov Pty Ltd v Bank of Queensland [2015] NSWSC 2015 (No. 2)
  4. The offer must refer to being in accordance with the principles in the decision of Calderbank v Calderbank and that the offeror reserves its right to tender the offer on an application for costs if the offer is rejected (Calderbank v Calderbank [1975] 3 W.L.R 586)
  5. The offer should include reasons as to why the offer should be accepted (NMFM Properties Pty Ltd v Citibank Ltd [2001] 109 FCR 77 (No 2)

In Victoria, the critical question to be considered in determining whether a Calderbank offer should have costs consequences is whether the rejection of the offer was unreasonable in the circumstances as set out in Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (no.2) [2005] VSCA 298 [23]. If the court is required to determine costs following a trial, they will consider the Calderbank offer that was previously on table and take into account all relevant considerations and ignore all irrelevant considerations (House v R (1936) 55 CLR 499).

As identified in the decision of Hazeldene’s Chicken Farm, the Court will take into consideration the following factors:

  • 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 offer
  • 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
  • Whether the offer foreshadowed an application for indemnity costs in the event of the offeree’s rejecting it

In Previsic v Fulton (Costs) (Building and Property) [2021] VCAT 17 (14 January 2021) the court held that the failure of the Applicant to accept the Respondent’s Calderbank offer was unreasonable. In this case the Applicant claimed that there was an unreasonable flow of water from the Respondents’ property which caused damage to the house. The Respondents’ solicitors sent a letter to the solicitors who were then acting for the Applicant, offering to bear their own costs of the proceeding, however the offer was not accepted by the Applicant. It was found that the offer made by the Respondents was in fact a Calderbank offer. The Tribunal explained that the unreasonable rejection by a party of an offer of settlement that would have been more favourable to that party than the outcome of the proceeding is a factor that is relevant to an application for costs by the party making the offer. In determining the question of reasonableness, the Tribunal held that the principles in Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (no.2) are to be considered.

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