Civil litigation is premised on the concept that the parties should look to resolve their disputes without the intervention of the Court and the time and costs associated with court hearing and determining the issues. An important way to encourage the parties to settle disputes is by offers of settlement which if not accepted may result in adverse costs orders against one of the parties if it was reasonable that they should. How you couch an offer of what you think is acceptable may depend on the relative strength of your case, i.e the risk of losing, your ego, or your war chest to keep on fighting.
In the recent decision of Chief Commissioner of State Revenue v E Group Security Pty Ltd (No 3)  NSWCA 63, the Court of Appeal had cause to consider the issues of Offer of Compromises and what is commonly referred to as Calderbank offer, so named after the English Court of Appeal decision Calderbank v Calderbank  Fam 93,  3 All ER 333 (EWCA).
The reason the decision is of interest is because it is not every day that the Court of Appeal gets involved in such cost arguments and principles. In this matter the Commissioner wanted the Court to change costs orders seeking a complete exoneration for any liability for E Group’s costs in the first instance hearing and then E Group to pay the Commissioner’s costs on an indemnity basis.
The Commissioner made an offer to settle the proceedings on the basis that the primary tax payable by E Group would be reduced by $859,098.78 (with a proportionate reduction on the market interest payable thereupon) and the premium component of interest payable, then amounting to $964,441.40, would be remitted in full. Thus, the Chief Commissioner agreed to accept $3,366,284.89 in full and final settlement of the proceedings which is less than the debt at the time of the hearing before the Court of Appeal of $4.2 million dollars. Thus, it would be fair to presume that as the Commissioner had beat its offer that E Group would be up for indemnity costs.
However, whilst the court acknowledged the relevance of Calderbank offers to indemnity costs orders, as Brereton J said: While it is relevant that a party betters a Calderbank offer, that does not found any presumption as to a departure from what would otherwise be the position in respect of costs. A party who wishes the benefit of such a presumption must make an Offer of Compromise in accordance with the rules, and the Court should not too readily allow the requirements of the rules to be circumvented by resort to Calderbank offers.
The Court looked at some of the principles whether it was reasonable or not for E Group to not accept the offer from the Commissioner, factors such as:
- the stage of the proceeding at which the offer was received;
- the time allowed to the offeree to consider the offer;
- the extent of the compromise offered;
- the offeree’s prospects of success assessed as at the date of the offer;
- the clarity with which the terms of the offer were expressed; and whether the offer foreshadowed an application for indemnity costs in the event of the offeree’s rejecting it
- all relevant evidence not having been served at the time of the offer;
- the full parameters of the dispute remaining uncertain at the time of the offer;
- the offeror’s case changing after the making of the offer.
In the circumstances of this matter, the Commissioner argued that E Group acted unreasonably in not accepting the offer because the offer was received 3 weeks before the hearing, the offer was open for 14 days, it contained a substantial compromise, the offer was expressed in clear terms and E Group had all the evidence to make the assessment that it would likely fail on its substantive arguments.
What E Group pointed to was that the amount it ultimately had to pay was interest on top of the debt and these were matters beyond its control because interest kept accruing on the principal debt during all the time the Commissioner was trying to gets it appeal on and in order. Further, E Group had made some instalment payments during the time the offer from the Commissioner expired and said if it succeeded on the issue of its primary tax liability, it would receive interest on the amount refunded. Thus, the question whether it was truly a compromise became an issue the Court of Appeal had to decide.
In the leading judgment of Griffith AJA he said:
I accept E Group Security’s submission that the Settlement Offer did not represent a compromise of its liability to primary tax. In the unusual circumstances described above (and, in particular, the delay occasioned by the Chief Commissioner’s attempt to amend its appeal grounds), while there was some compromise on the issue of liability to interest, that result is largely due to the effluxion of time caused by the Chief Commissioner’s conduct of the appeal and its attempt to raise new grounds.
When the Settlement Offer was made, the parties’ dispute was directed to the question whether E Group Security was an employment agent. The Chief Commissioner entirely failed on that issue, which issue dominated the proceeding below. As noted in the principal judgment at  and [109(1)], the issue on which the Chief Commissioner ultimately succeeded on appeal received relatively little attention below.
Government entities are not perfect and get it wrong (even if through their advisors). As Brereton J said if you want to add certainty to arguments for indemnity costs – better turn to the rules and use an Offer of Compromise. Calderbank offers make a much higher hurdle to jump over to get indemnity costs than an Offer of Compromise. Make sure it is truly a compromise by reference to what is happening in the case at that time and don’t change your case after the offer is made if you wish to rely on the offer for an indemnity costs order.