Calderbank offers revisited

A recent decision of the Victorian Court of Appeal confirms that an important factor in determining whether the rejection of a Calderbank offer is unreasonable is whether a bona fide compromise of the dispute has been offered.1

Background

The applicant was a shareholder and creditor of a company, which was reinstated pursuant to s 601AH(2) of the Corporations Act 2001 (Cth) (Act), following its deregistration.

The respondent was appointed liquidator of the company following reinstatement.

The applicant issued proceedings in the Supreme Court of Victoria, seeking an order that the Court investigate the conduct of the respondent pursuant to Schedule 2 of the Act.  The applicant alleged that the respondent had not faithfully performed his duties as liquidator.

The proceedings were precipitated by the applicant seeking the assignment to him of a cause of action by the company against a financial institution, in relation to a loan transaction. The assignment had not progressed to the applicant’s satisfaction.

As a threshold issue, the Court was required to decide whether an inquiry should be ordered into the conduct of the respondent.     

The Court was not persuaded that the respondent had failed to comply with the Act or that he had failed to perform his duties as liquidator.   Further, there was nothing to suggest that it was in the public’s interest to conduct an inquiry, such that the jurisdiction of the Court was invoked. The proceeding was accordingly dismissed with costs.2

An appeal to the Victorian Court of Appeal was similarly dismissed.3

Decision of the Court of Appeal in relation to costs

Following the dismissal of the appeal, the respondent, by written submissions, sought orders from the Court of Appeal with respect to costs of the appeal.

The respondent submitted that the applicant ought to have known that his appeal was hopeless, with no prospects of success.  However, the Court of Appeal disagreed with this categorisation, given that two of the proposed grounds of appeal raised legal questions of substance.

Prior to the hearing of the appeal, the respondent’s solicitors served a Calderbank offer on the applicant’s solicitors, informing the applicant that if he failed to withdraw his appeal, and the respondent was successful, he would seek an order that the applicant or his solicitors pay his costs on an indemnity basis from the date of the letter.

The Court of Appeal identified the critical question as being whether the rejection of the respondent’s offer was unreasonable, having regard to the factors outlined in Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2).4 However, in the present case, the offer merely invited the applicant to discontinue.  If the applicant had done that, the effect of discontinuance would have been that the applicant pay the respondent’s costs, subject to any contrary order.5  In the circumstance, the Court remarked that:

‘There was no offer to avoid the operation of this rule, and, in reality, no compromise was offered at all.’6

The Court concluded that it was not unreasonable for the applicant to reject the respondent’s Calderbank offer in the circumstances.

The Court ordered that the applicant pay the respondent’s costs of the appeal7 on the standard basis.

Commentary

In Hazeldene’s Chicken Farm, decided over 15 years ago, the Court of Appeal outlined the factors that a court should ordinarily have regard to in deciding whether rejection of a Calderbank offer was unreasonable. 

Those factors comprise:

a) the stage of the proceeding;

b) the time allowed to the offeree to accept the offer;

c) the extent of the compromise;

d) the offeree’s prospects of success, assessed at the date of the offer;

e) the clarity with which the terms of the offer are expressed; and

f) whether the offer foreshadows an application for indemnity costs in the event the offeree rejects it.8

This recent decision of the Court of Appeal underscores the importance of the third factor, namely, the extent to which a compromise has been proposed.  In order for a Calderbank offer to provide potential costs protection, it must contain a bona fide element of compromise and cannot amount to an ‘offer to capitulate’.9

It is possible that the outcome in the present case might have been different in relation to costs if, for example, the respondent had offered to forego his claim for costs with respect to the appeal, in the event the applicant withdrew. 

 

1. Djordjevich v Rohrt [2022] VSCA 123.

2. [2021] VSC 178.

3. [2022] VSCA 84.

4.  [2005] VSCA 298.

5. Rule 64.29(4) of the Supreme Court (General Civil Procedure) Rule 2015 (Vic).

6. [2022] VSCA 123 at [9].

7. Being the costs of the application for leave to appeal as well as the appeal.

8. Hazeldene’s Chicken Farm at [25].

9. See e.g. Berrigan Shire Council v Ballerini (No 2) [2006] VSCA 65.

This article may provide CPD/CLE/CIP points through your relevant industry organisation.

The material contained in this publication is in the nature of general comment only, and neither purports nor is intended to be advice on any particular matter. No reader should act on the basis of any matter contained in this publication without considering, and if necessary, taking appropriate professional advice upon their own particular circumstances.

 

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