In Australia, the ‘English rule’ applies to the costs of litigation: the loser pays the winner’s costs. Historically, offers of settlement known as Calderbank offers have the potential to partially reverse this rule. A party who unreasonably rejects a Calderbank offer and obtains a lesser amount after trial faces the risk of having to pay the other party’s costs from the date the unaccepted offer expired. The offers have therefore been generally used in all types of matters to discourage litigation and encourage early settlement.
The ACT Court of Appeal’s recent decision in Cooper v Singh1 has reinforced the view that the benefits of Calderbank offers should normally be limited to the benefits of ‘offers of compromise’ that are governed by the Court Procedure Rules 2006 (ACT) (Rules-based offers).
The impact of this decision is not immediately obvious: the benefits of Rules-based offers are in many cases the same, if not better than the potential benefits of Calderbank offers. That is because Rules-based offers do not involve an element of reasonableness in the offer or unreasonableness in the rejection – traditional requirement for a Calderbank offer.
However, Rules-based offers apply differently to cases involving personal injury claims, where they favour plaintiffs over defendants. Only where a plaintiff rejects an offer and loses entirely, receiving nothing at trial, can a defendant expect to receive some of its costs. In all other circumstances, including where the defendant offers to pay much more than the plaintiff receives, either the defendant will pay the plaintiff’s costs (if the plaintiff beats an offer that it made to the defendant), or each party will bear their own costs (if the plaintiff wins but does not beat an offer made by the defendant).
The Court of Appeal’s decision in Cooper v Singh
Ms Singh was driving home from work on 23 March 2013. As she was stopped at an intersection waiting to turn left a car hit her from behind, pushing her vehicle into the opposite lane. The front of her car was then struck by a second, oncoming car. The force of the first impact was significant, shearing off the left-hand rear wheel of her vehicle. As a result of the accident, she suffered a range of injuries to her neck and back.
Ms Singh sued the driver of the car that had struck her from behind. That driver’s insurer (defendant) accepted liability, and the matter proceeded to an assessment of damages before the Associate Judge in the ACT Supreme Court.
A settlement conference three weeks before the hearing date failed to resolve the matter. Shortly after, Ms Singh made a Calderbank offer of $650,000 plus costs. In response, the defendant made its own Calderbank offer of $540,000 plus costs. Neither offer was accepted, but before trial the defendant made attempts to negotiate further. Ms Singh refused, so the matter proceeded to a three-day trial.
The Associate Judge then awarded Ms Singh $311,603 plus her costs – about $230,000 less than the defendant offered to pay before the hearing. Understandably, the defendant applied to have Ms Singh pay its costs after the date the $540,000 offer had been made, in accordance with the Calderbank offer containing that amount. In the process of doing so the defendant submitted that Ms Singh’s conduct in relation to its offer was unreasonable because she failed to beat the $540,000 offer at trial and also had refused to negotiate further when the defendant had been willing to.
Associate Judge Mossop (as His Honour then was) declined to make the order asked for by the defendant. Although it was concluded that the failure to accept the Calderbank offer was unreasonable, the existence of the Rules-based offer regime was highlighted. His Honour considered it ‘appropriate to give weight to the desirability of there being some consistency in approach between costs orders made as a result of offers of compromise and costs orders made as a result of Calderbank offers.’
The Associate Judge also acknowledged that in some cases it would be appropriate to make costs orders more favourable than the Rules-based offer regime allowed. However, in this case Ms Singh’s conduct was not considered to be sufficient to make such an order, despite the ‘significant’ difference between the defendant’s offer and the amount of the judgment. In particular, it was noted that a fundamental issue at trial was economic loss, for which ‘there was clearly a range of possible outcomes’.
His Honour ordered that Ms Singh should pay her own costs after the offer of $540,000, but not the defendant’s costs. That is what the outcome would have been if the defendant’s Calderbank offer had instead been a Rules-based offer.
The defendant appealed on two grounds. Firstly, it alleged that the primary judge made an error by approaching the matter on the basis of a need for consistency between the Calderbank offer and a Rules-based offer. Secondly, it said the conclusion that Ms Singh had acted unreasonably compelled the Court to give full effect to the defendant’s Calderbank offer.
The Court of Appeal dismissed the defendant’s arguments.
In relation to the first ground, it said that the primary judge had merely included, “as a factor in the matters to be taken into account, in the exercise of the discretion, the existence of the Court rules.” Since costs orders are always at the discretion of the Court making them, the fact that His Honour had taken the Rules-based offer regime into account did not mean that the decision was wrong. In relation to the second ground, it said:
35. The finding of unreasonableness played a significant part in the exercise of His Honour’s discretion. His Honour however also considered other matters such as the existence of the rule based offers of compromise regime, the unique considerations applicable to personal injury cases and “the extent of unreasonableness on the part of the plaintiff that may be inferred is not so great as to require a consequence greater than that which would apply had there been a rules-based offer”.
36. The fact that the discretion may have been exercised otherwise does not result in a successful appeal. Unless a specific deficiency can be identified in the exercise of the discretion, such as the consideration of irrelevant matters or a mistake as to the facts, the discretion will stand. No such identification of error is evident here. Accordingly, the second issue is also found against the appellants.
The Court of Appeals’ decision is significant because it has a substantial limiting effect on the advantages of Calderbank offers for defendants in personal injury cases. It seems that the maximum benefit a defendant can obtain from such an offer would be the benefit that would be available under the less-favourable Rules-based offer regime. This will be the case even if the offer does not cite the provisions making it a Rules-based offer.
The decision also seems to have ‘lowered the bar’ for when a refusal to accept an offer will be unreasonable enough to invoke Calderbank benefits. Ms Singh’s award was nearly $230,000 less than the defendant was willing to pay prior to trial. Yet this substantial gap was not enough to entitle the defendant to its costs of having to proceed to hearing.
Although costs orders will always be at the discretion of the court making them, and discretionary decisions are not easy to overturn, the Court of Appeal’s decision raises questions about when a Calderbank offer will actually provide any benefit. In particular, if a gap of $230,000 between the offer made and the amount received was not enough to invoke costs consequences, one has to ask the question, what gap would be enough?
1 ACTCA 21.