Offers to Settle under the Uniform Civil Procedure Rules and Calderbank Offers

Offers to settle litigation can put an end to the litigation and, if in an appropriate form, can provide a foundation to argue for more advantageous costs orders than might otherwise apply to the offeror if the trial proceeds.  If an offer is to serve the second purpose, the offeror might, in appropriate circumstances, take advantage of the statutory regime in Chapter 9 Part 5 Uniform Civil Procedure Rules (“Part 5”) providing for the making of offers and for the cost consequences of such offers.  The offeror might also seek to  make an informal offer on a “without prejudice except as to costs” basis. In this note I wish to examine some aspects of these two forms of offer and how they interrelate, especially where an offer under Part 5 fails for some defect in form or content.

Some technical aspects of offers under Part 5

The procedure established by Part 5 is widely used.  However, to take advantage of it, an offeror must make an offer which falls within its scope.  The express requirements for an offer to settle under that Part are modest and include:

Failure to comply with these requirements will (most likely1) prevent the offer from being one made under Part 5 with the consequence that the statutory benefits conferred by that Part will not be available in respect of the offer.  However, mere compliance with the express statutory preconditions in Part 5 does not necessarily mean that an offer is an offer under that Part.

In the writer’s view, it is arguable that there is also an implied limit on the nature of the terms which can be included in an offer if it is to constitute an offer under Part 5.  That limit being that only terms which fall within the scope of the relief which could be granted by the Court in respect of the claim the subject of the offer can be included in offers under Part 5.

On one view of it, it might seem unlikely that there is any such limitation. Rule 353(1) relevantly provides that a party may serve on another party “an offer to settle 1 or more of the claims in the proceeding on the conditions specified in the offer to settle”.  On its face, that would appear to permit the inclusion in the offer conditions which go beyond the relief available in respect of the claim dealt with by the offer, so long as the offer can be characterized as being an offer to settle such a claim.  So terms relating to the release of other causes of action or to some other extraneous issue would prima facie appear to be able to be included in such offers.  It is understandable that clients might wish to secure such extraneous benefits as part of a settlement.

On the other hand, Rule 358(4) provides that if an offer to settle is accepted, the Court may incorporate any of its conditions into a judgment.  Similarly, Rule 365(a) provides that if a party does not comply with an accepted offer to settle, the other party’s options include applying to the Court for a judgment on the conditions of the offer and the Court may give the judgment.  These provisions suggest, if only by implication, the limitation suggested in paragraph 4.  If it were otherwise, the effect of those Rules would be to expand the Court’s powers in a given proceeding to include the powers to make as an order of the Court any and every term which a party might choose to include in an offer to settle.  It is difficult to accept any such extension of the powers of the Court was intended, especially as there is no limit to what parties might dream up as the terms upon which they might seek to offer to settle proceedings.

Even if this were incorrect, however, it seems inadvisable to include terms going beyond the relief available in the claim the subject of the offer.  That is, of course, because the costs advantages conferred by Part 5 on an offer made under that Part are determined by contrasting the terms of the offer to settle with the judgment obtained by the plaintiff.2 So, for example, Rule 360(1) relevantly provides that if the plaintiff makes an offer to settle that is not accepted by the defendant and the plaintiff obtains a judgment no less favourable than the offer to settle, the defendant must pay the plaintiff’s costs on an indemnity basis.  It is trite law that any offer under Part 5 must be certain and unambiguous and must be clear as to the benefits which the party receiving the offer would obtain if it is accepted.3

An offer to settle which included terms such as general releases (even if articulated with precision in the offer) would be all but impossible to contrast in the meaningful way with the judgment obtained by the plaintiff, especially where the judgment obtained was a money sum.  Accordingly offers containing such terms run the risk of being ineffective to secure costs advantages conferred by Part 5.

Ineffective offers under the Rules

Let it be assumed that a party attempts to make an offer under the Part 5, but the offer is ineffective.  Is that the end of the useful life of the offer or can it be treated as a Calderbank offer and taken into account in the exercise of the Court’s discretion on that basis?

A brief reminder of the principles is convenient here.  An offer to settle made without prejudice cannot be relied upon at all on questions of costs.4 On the other hand, an offer made without prejudice except as to costs, or Calderbank offer, may be relied on in respect of costs.5  In assessing what, if any, consequences to attach to a Calderbank offer, the Court has regard primarily to whether it was unreasonable for the offeree to reject the offer when it was made.  Whether it was or not depends on all the circumstances of the case. There is no prima facie presumption that the party making the offer is entitled to costs on an indemnity basis from the making of the offer.6

The answer of the question posed in paragraph 9 turns on two main considerations:

Status of offers made pursuant to Part 5

Rule 356 provides that “An offer to settle made under this part is taken to be an offer made without prejudice.”  There does not seem to be any compelling reason why the expression “without prejudice” in that rule ought not be construed consistently with the meaning of that expression at common law articulated in paragraph 10.  If so, where an offer to settle is made under Part 5, but it fails to give rise to a cost benefit under that Part, it will otherwise be inadmissible in evidence pursuant to without prejudice privilege.  This was the view taken of an equivalent New South Wales provision by McLelland J in Williamson v Mig Aero Pty Ltd (unreported decision NSW Supreme Court 15 March 1991).

It is therefore important to determine whether an “ineffective” offer made under Part 5 is an “offer to settle made under” Part 5 for the purposes of Rule 356.   There seems to be three ways in which an offer to settle purportedly made under Part 5 might be “ineffective”:

The third case is most easily disposed of.  In that case, the offer will clearly be an offer within Rule 356 and privilege in it will be protected.  It will not be able to be relied upon as a Calderbank offer.

The other cases are more problematic.  In those cases, there has been a purported offer under Part 5 which has failed for one reason or another to comply with its requirements (for convenience these will be referred to as purported offers).  In those circumstances, it seems to the writer that the better view is that such offers are not offers under Part 5 and accordingly Rule 356 would not apply.  This means that such offers are not excluded by that Rule from being treated as Calderbank offers.

Can purported offers under Part 5 be treated as Calderbank offers?

On what basis is the purported offer made?

If Rule 356 does not apply to a purported offer, can such an offer be treated as a Calderbank offer instead?  In considering this question there will always be the threshold issue of whether the offer can in fact be properly characterized as a Calderbank offer at all.  Ordinarily, this will require that the offer be shown to have been made without prejudice except as to costs.  In the absence of an express statement in the offer to that effect, each case will have to be considered on its own facts.

An important consideration in this regard will be what if any significance is given to the fact that the offer was made under Part 5 in determining, as a matter of implication, the basis upon which the offer was made.  A full analysis of this is beyond the limits of this paper, but it is interesting to recall Rule 356.  Perhaps purported offers would be assumed, absent express statement, to be made on that without prejudice basis.  To avoid difficulties on this point, offers under Part 5 should probably also be marked “without prejudice except as to costs”.

The next question is whether, as a matter of law, a purported offer can be treated as a Calderbank offer.  This question is tied up with the more general one of whether Calderbank offers can be made in circumstances where the statutory regime for offers to settle is available in respect of the particular claim.  This is an important question.

The relationship between Part 5 UPCR and Calderbank offers

In Cutts v Head [1984] Ch 290, in which the English Court of Appeal followed Calderbank, the Court made observations (at 312) suggesting that Calderbank offers could only be considered where specific statutory regimes (in that case, provisions for payment into Court) did not apply.  The approach in Cutts v Head, including that apparent limitation, was adopted by Thomas J in the Full Court in Smith v Smith [1987] 2 Qd R 807 at 809.  However in that case it does not appear that the statutory regime for payment into Court was available for the particular proceeding (an account). In any event, the proposition that Calderbank offers might only be taken into account where no statutory regime to make an offer in respect of the particular claim exists has been rejected in Queensland.

In Maggbury Pty Ltd v Hafele Australia Pty Ltd [2000] QCA 172 at [3] the Court of Appeal accepted that an offer which could have been made under Order 26 Supreme Court Rules8, but was not, could nonetheless be taken into account in respect of costs orders at trial.  The Court did not give detailed reasons for that conclusion, instead referring to Grbavac v Hart [1997] 1 VR 154 at 160, 163 and 165.

That case was a decision in the Victorian Court of Appeal involving an ineffective attempt to make an offer under the equivalent of Part 5.  There it was held that notwithstanding that the offer was purportedly made under the relevant rule, it could still be treated as a Calderbank offer. Hayne JA (in dissent on the result) noted the oddity that a litigant who has attempted to utilize the statutory procedure and failed ought be nonetheless saved from that error by treating the offer as a Calderbank offer9.  However, his honour ultimately considered that the public interest in compromise of litigation justified giving consideration to such offers.10

On the facts of that case, the attempt to use the statutory procedure failed because on its proper construction, it did not extend to offers made pending an appeal.11   In Maggbury on the other hand, the offer that was made could have been, but was not, made under Part 5. In that sense, Maggbury extended the decision in Grbavac v Hart.

In Dobb v Hacket (1993) 10 WAR 532 at 538 to 540, Murray J dealt directly with the question of offers made informally where the statutory regime could have been used.  There an offer had been made outside an equivalent statutory regime to that contained in Part 5, in circumstances where the statutory regime could have been utilized.  The offeree contended that informal offers of the kind made in that case should have no effect on the exercise of the discretion. His honour reviewed the authorities, including Smith v Smith, and then rejected that submission.  In short, his honour considered that “the Court should preserve in the minds of litigants, the conscious consideration that their behaviour may place them at risk as to costs if they refuse reasonable offers of settlement.”

Maggbury  was applied by Dutney J in Manwelland Pty Ltd v Dames & Moore Pty Ltd [2000] QSC 432 at [16].  That case involved the same situation as existed in  Dobb v Hacket and  Maggbury, in that an offer could have been made under Part 5, but was not.  Notwithstanding that his honour accepted an informal offer could be considered in that situation, he made the following important observation about the desirability of encouraging use of Part 5:

In the result, his honour did not take the offer into account in exercising his discretion, though he also considered that in any event it was not clear on the facts that the judgment obtained was less favourable than the offer.

His Honour’s approach in that case indicates that, although Calderbank offers might be, as a matter of law, be taken into account in circumstances where an offer under Part 5 could have been made, in exercising its discretion, the Court may also take into account the provisions of the statutory regime and whether the offeror will obtain advantages by its informal offer which are not available under the statutory regime. One would imagine that this approach could apply a fortiori where there has been a purported offer under Part 5.

Conclusion

In the light of those authorities, it appears that both purported offers under Part 5, and offers which could have been made under Part 5 but which were made informally, may be treated as Calderbank offers if otherwise shown to have been made without prejudice except as to costs. However, in such cases the existence of Part 5 and its provisions as to cost consequences of offers might also be taken into account by the Court in determining what if any effect to give to informal offers of both kinds.

Bernard Porter

Footnotes

1. It might be open to argue that some of these, or other, conditions set out in Part 5 are not essential for  an offer to constitute an offer under Part 5.  This aspect of that matter is beyond the scope of this note.
2. Part 5 that it does not provide for any cost advantage to a defendant where the defendant is successful at trial.
3. Duncan & Weller Pty Ltd v Mendelson [1989] VR 386 at 400-401; John Goss Projects Pty Ltd v Thiess Watkins White Constructions Limited [1995] 2 Qd R 591 at 595.
4. Cross on Evidence  (Australian Edn) Looseleaf Service at [25360]
5. Calderbank v Calderbank [1975] 3 All ER 333
6. Westpac Banking Corporation v Commissioner of State Revenue  (2004) 55 ATR 72 per White J at [30] to [33] especially at [33]
7. As occurred in Tamwoy v Soloman [1996] 2 Qd R 93.
8. The equivalent under those rules to Part 5 UCPR
9.  p. 164.40
10. pp 164-165
11. Which of course is also the position in Queensland: see Tector v FAI General Insurance Company Ltd [2001] 2 Qd R 463 and Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2006] QCA 41at [16] — [18]
12. Because, the writer suggests, the defendant was seeking indemnity costs from the date of the offer, not costs on a standard basis which would have been available under Rule 361.  Further, of course, under Part 5 as it presently stands, a defendant cannot obtain a costs benefit if it is successful.  One assumes that purpose of the Calderbank offer might also have been to try to secure a cost advantage if the defendant was successful.