Australia: General: Protecting your costs position

Insurance Update

Vieira v O'Shea (No 2) [2012] NSWCA 121

The NSW Court of Appeal considered whether the service of an offer of compromise entitled Vieira to indemnity costs.

The initial proceeding brought in the NSW Supreme Court by Vieira against O'Shea and six other defendants related to the purchase by Vieira of an interest in a racing horse. At the time of the purchase the horse had a physical condition that later resulted in it being unable to be trained or raced for a significant period of time and thus diminished its value. It was alleged that O'Shea was aware of the condition but failed to advise Vieira of it.

In the first instance the proceeding was dismissed. Vieira appealed as against O'Shea to the Court of Appeal. The Court of Appeal allowed the appeal and awarded Vieira damages of $255,248 plus interest and ordered that O'Shea pay Vieira's party/party costs of the trial and appeal.

Vieira subsequently filed a Notice of Motion seeking part of his costs of both the trial and appeal on an indemnity basis.

On 6 July 2009, approximately one year into the proceeding, Vieira served a formal Offer of Compromise on the defendants. The offer sought to compromise the whole action on the basis that the defendants together pay $215,600 to Vieira as well as Vieira's costs of the proceeding. Vieira conceded that the Offer did not constitute a formal Offer of Compromise because it was not "exclusive of costs" and therefore relied on it as a Calderbank offer. Vieira sought indemnity costs from the time of this offer.

Whilst the Court did not challenge this, it interestingly noted that a mere reference to costs in an Offer does not render it invalid unless that reference operates inconsistently with the relevant costs rule.

The issue the Court was required to address was whether the Calderbank offer was "capable of acceptance" by O'Shea. The Court of Appeal found that the offer was not capable of being accepted by O'Shea on his own or on behalf of the other defendants and therefore it was not unreasonable for the offer to not be accepted. The Court of Appeal therefore rejected Vieira's application for indemnity costs for the trial.

The appeal was filed on 4 March 2011. On 6 June 2011 Vieira filed an Offer of Compromise on O'Shea for $180,000. Vieira sought indemnity costs of the appeal from the date of this offer.

O'Shea disputed that the offer was a formal Offer of Compromise for three reasons:

  1. It failed to state that it was "exclusive of costs" as required by the Uniform Civil Procedure Rules. The Court of Appeal rejected this argument stating that the offer did not purport to be inclusive of costs and there was no reason to infer that it was;
  2. The offer was asking O'Shea to abandon a cross-appeal he had filed against Randwick Equine Centre. The Court of Appeal did not agree, as it was open to O'Shea to protect his position on the cross-appeal if he wanted to accept the offer;
  3. It did not identify the orders which would be made if the offer was accepted. In particular, it did not identify the fate of the costs orders of the trial court, which in substance amounted to a claim that the offer was uncertain. The Court of Appeal found that whilst lack of clarity in the terms of an offer is a relevant consideration in determining whether rejection of a Calderbank offer is unreasonable, a higher element of uncertainty is required to justify a finding that a formal offer of compromise is invalid. The Court of Appeal found that an offer made in respect of an appeal should be understood as seeking to invoke the normal costs rules applicable to the proceeding and in this circumstance that included that the costs orders in favour of O'Shea for the trial would be challenged.

The Court of Appeal found that Vieira was entitled to costs of the Appeal incurred after the offer on an indemnity basis.

Kemp v Ryan & Anor [2012] ACTCA 12

This case involved a construction dispute between the plaintiff (builder) and the defendants (home owners).

The plaintiff commenced a proceeding against the defendants in February 2008 seeking $64,228 plus interest at 20% for unpaid work. The proceeding was settled and judgment for the plaintiff was entered for $53,330.00 plus contractual and post judgement interest. The issue of costs was reserved for hearing.

At the costs hearing, the plaintiff sought indemnity costs for the proceeding on the basis of a Calderbank offer made to the defendants on 6 September 2008. The parties agreed that in order for an offer to constitute a valid Calderbank offer it is necessary that the terms of the proposed settlement be unambiguously clear and that the offer must be capable of being accepted.

The claim for indemnity costs was rejected by the ACT Supreme Court on the basis that the plaintiff's settlement offer did not constitute a proper Calderbank offer because it was not unambiguously clear and certain. The portion of the offer which was found to be ambiguous was:

"This offer is made pursuant to the principles of Calderbank v Calderbank and will remain open for acceptance to 7 October 2008, whereupon it will lapse.

  1. The plaintiff will accept $53,146.00 in settlement of his claim.....
  2. Plus interest at 20% in accordance with clause 21 of the contract until that money is paid.
  3. Plus costs as agreed or assessed."

The ACT Supreme Court found that paragraph 2 of the offer was unclear because it was susceptible to a number of possible interpretations. In order for paragraph 2 to be capable of acceptance it had to be objectively clear when interest was to start running, which it was not.

The plaintiff appealed to the ACT Court of Appeal.

The Court of Appeal refused the appeal agreeing with the reasoning of the Supreme Court. The Court of Appeal found that paragraph 2 of the offer was ambiguous and confusing and capable of at least two possible interpretations. On this basis the offer did not constitute a valid Calderbank offer. The Court of Appeal also noted that whilst the defendants could have raised the ambiguity whilst the offer was open, this did not change the outcome.

Lessons learnt from Kemp v Ryan and Vieira v O'Shea (No 2)

  1. Reference in a formal Offer of Compromise in NSW to costs will not render the offer invalid unless it purports to alter the costs provisions contained in the Uniform Civil Procedure Rules.
  2. In order for a Calderbank offer to be considered effective and therefore capable of providing costs protection, the offer must be :
    1. clear and unambiguous; and
    2. capable of being accepted by the relevant party.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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