19 Jul 2012

Is your Calderbank offer clear and capable of being accepted?

by Sid Wang, Roxana Carrion, Zara Shafruddin

Your Calderbank letter must be correctly drafted, and its terms unambiguously clear and capable of being accepted.

For most litigants, the costs incurred in running a dispute is a key concern, and in their mind throughout the litigation process. For this reason, Calderbank offers and Offers of Compromise are important tools, as they can result in litigants having some degree of costs protection.

In particular, Calderbank offers provide a flexible approach to the making of settlement offers and will often be deployed in the lead-up to trial, which is one of the most intense periods in a litigated matter. Quite often, Calderbank offers can be carelessly drafted, with the focus of the correspondence being on pressuring the offeree to settle and ignoring essential requirements.

Recent Court decisions of Kemp v Ryan [2012] ACTCA 12 and Vieira v O'Shea (No. 2) [2012] NSWCA 121 have emphasised the importance of ensuring that your Calderbank letter is correctly drafted, and that its terms must be unambiguously clear and capable of being accepted.

The requirements of Calderbank Offers

Courts may have regard to Calderbank offers on the question of costs and can order a party who rejected the offer of settlement to pay the successful party's costs on an ordinary basis up to the time the offer was made, and on an indemnity basis from the date of the offer to the end of the litigation.

In considering a Calderbank offer in exercising its discretion as to costs, a court will consider whether:

  • the terms of the offer are clear, precise and certain;
  • the offer represents a "genuine compromise";
  • the offer clearly indicates the intention of the offeror to bring the offer to the Court's attention (for example, by stating that the offer was made in accordance with the principles expressed in Calderbank v Calderbank); and
  • whether rejection of the offer was reasonable in the circumstances.

Requirement of certainty

In Kemp v Ryan [2012] ACTCA 12, the ACT Court of Appeal considered an appeal from a Master's decision to refuse an order for indemnity costs. In that matter, the parties had reached an agreement to settle their building dispute, except to the issue of costs.

In relation to costs, the applicant sought indemnity costs from the date of expiry of a Calderbank offer he had previously made on 6 September 2008. Relevantly, that settlement offer provided:

  • for "interest at 20% in accordance with clause 21 of the contract until that money is paid". Clause 21 of the contract set out the process for making progress payments under that building contract, and in particular provided that if a progress payment was not made by the due date, the builder would be entitled to interest at 20% in respect of the progress payment due; and
  • for "costs as agreed or assessed". This term was directly followed by a statement of the offeror's solicitor-client costs and disbursements at that time.

At first instance, the ACT Supreme Court considered that the settlement offer was invalid as its terms relating to the interest payable and the costs sought were ambiguous. On appeal, Justices Penfold, Burns and Marshall agreed.

With respect to the interest component of the offer, the ACT Court of Appeal agreed that the term was ambiguous and confusing as the term was capable of a number of possible interpretations. The Court commented that neither the term, nor clause 21 of the building contract, provided a commencement time for the calculation of interest. Further, it was unclear from the term whether the amount on which the interest would be paid was to be the total of the judgment sum, or only the amounts subject to interest under the progress payment provision in clause 21 of the building contract.

The respondent contended that the term should be interpreted as requiring that interest on the amount said to have been owed, would be payable in accordance with the terms of Clause 21 of the building contract. However, he conceded that this involved relatively little compromise on his part but added that the offer would have been “a sensational offer” if the term was to be interpreted as meaning that interest was only to run from the time the settlement payment became due, after the offer was accepted. The Court stated that confusion on the interpretation of this term was increased by the fact that neither interpretation seemed to reflect a real compromise.

In relation to that part of the settlement offer concerning costs, the Court of Appeal considered that this term was also ambiguous as the reference to "costs as agreed or assessed" did not specify or imply the exact nature of those costs, and the statement which followed (being the offeror's solicitor-client costs and disbursements at that time) caused confusion as to whether the settlement offer included party-party costs (which is reasonably inferred) or solicitor-client costs.

Finally, the Court of Appeal also commented that, even though ambiguity in the settlement offer was not raised while the offer was open, this does not establish that the offer was sufficiently clear to have created a binding contract if it had been accepted.

Requirement that the offer must be capable of being accepted

In Vieira v O'Shea (No. 2) [2012] NSWCA 121, the Court considered the dangers associated with making an offer of settlement to multiple offerees with differing interests.

In that case, the appellant sent an offer of compromise, which was subsequently agreed by the parties to be treated as a Calderbank offer,[1] to all seven defendants in the main matter. The offer provided that it was an offer for the "action in whole" and that the defendants would "together" satisfy the offer.

A further element of complexity arose from the fact the interests between the first and some other defendants were opposed, as the third to seventh defendants were only joined to the appellant's statement of claim after they had been sued by the first defendant on a cross-claim.

The first respondent (the first defendant in the main matter) subsequently rejected the offer.

Ultimately, the Court held that the offer was not capable of being accepted by the first respondent on behalf of the other defendants in the absence of authority to do so. Even if the first respondent had satisfied the entirety of the offer on its own accord, the Court considered that this would not have constituted acceptance of the offer, nor would it have resolved the "action in whole" as a number of questions would remain alive, including whether the appellant would proceed against the third to seventh defendants, and if not, how those proceedings would be disposed of.

Lessons learnt

In light of these recent decisions, you should ensure that:

  • your offer clearly sets out the terms of your offer;
  • if you wish to provide for interest in the offer, clearly stipulate:
    • the commencement and end time in which the interest will accrue; 
    • the rate at which the interest is charged;
    • the amount upon which such interest is charged; and
    • whether interest is simple or compound;
  • if including costs as part of your offer:
    • ensure that you clearly state the amount or whether it is to be agreed or assessed or taxed; and
    • be sure not to create any confusion as to the nature of costs payable, that is, whether its party-party costs (as would normally be inferred) or solicitor-client costs;
  • the fact that ambiguity is not alleged when the offer is still open does not mean that it is decisive in determining whether the offer was sufficiently clear in the first place; and
  • care is taken when making a Calderbank offer to multiple parties, as Calderbank offers made jointly to several offerees may be deemed ineffective, especially if the offerees have differing interests

[1] Due to their contravention of UCPR Rule 20.26(2) which require offers of compromise to be "exclusive of costs".Back to article

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.