Make your offers count! The Supreme Court of Queensland revisits the principles relating to compliant UCPR and Calderbank offers

By Madelyne Inch and Priya Paquet

The Supreme Court of Queensland has recently re-examined the principles that will enliven a costs award following the provision of a formal offer under Chapter 9, Part 5 of the Uniform Civil Procedure Rules 1999 (Qld) (UCPR) in Built Qld Pty Ltd v Pro-Invest Australian Hospitality Opportunity (ST) Pty Ltd (No 3) [2022] QSC 62.

The plaintiff, Built Qld Pty Ltd, and the defendant, Pro-Invest Australian Hospitality Opportunity Pty Ltd, entered into a contract for the design and construction of a hotel located in Spring Hill for the sum of $33,366,024. The plaintiff commenced proceedings claiming the sum of $6,158,864.22. The plaintiff’s claim involved 22 separate claims, including the entitlement to variations, costs of alleged variations, extensions of time and delay damages, the defendant’s entitlement to liquidated damages for late completion, and also amounts in respect of rectification of alleged defective work. The most valuable of which was referred to as the ‘Mechanical Variation’, comprising $4,060,248 of the total claimed amount.

The defendant brought a counterclaim in respect of alleged defects, additional liquidated damages, and alleged lost wages.

On 26 November 2021, Justice Williams ordered that the defendant pay the plaintiff the amount of $459,354.38 plus interest of $209,307.30 (totalling $688,661.68). While the plaintiff was not entirely unsuccessful, it lost the Mechanical Variation point. The parties submitted that it was necessary for there to be further oral submissions on the issue of costs.

Offer history

During the course of the litigation, the defendant made two offers, both on 21 June 2018:

• a formal offer made under r 353 of the UCPR to settle ‘all claims’ in the proceeding by payment of $1,850,000, plus interest pursuant to the Civil Proceedings Act 2001 (Qld) (CP Act) (Formal Offer). The Formal Offer was subject to the parties entering into a ‘mutually acceptable deed of settlement and release reflecting the terms of the Offer to Settle’.
• a Calderbank offer to pay the sum of $2,250,000, inclusive of interest and costs, to settle the entirety of the proceedings (Calderbank Offer).

The plaintiff rejected both offers.

The parties’ positions

The defendant submitted that the plaintiff should, in the first instance, pay its costs on an indemnity basis from the date of the Calderbank Offer. Alternatively, if the Calderbank Offer was not a valid offer, the defendant submitted the plaintiff should pay its costs in relation to the plaintiff’s claim on the standard basis, and on its counterclaim on an indemnity basis, from the date of the Formal Offer.

The plaintiff submitted the usual rule is that costs follow the event and there is no reason to depart from that rule.^[1] The plaintiff acknowledged that, while it was not successful on all points, the rule is unaffected, because – as is often with construction claims – there were a series of separate and distinct claims but, nonetheless, the plaintiff obtained a verdict as being successful in the litigation, and it should be entitled to costs.^[2]

The plaintiff argued:

• both the Formal Offer and the Calderbank Offer did not distinguish between the amount offered to settle the claim and the counterclaim;
• in respect of the Calderbank Offer, it was not unreasonable for the plaintiff to reject the offer because significant changes were made to the defendant’s case between when the offer was made in 2018 and when the matter went to trial in late 2021 (in respect of both its defence to the plaintiff’s claim and the counterclaim);
• the condition that a deed of settlement and release be executed was an impediment to comparison between whether the Formal Offer was more or less favourable then the outcome of the proceeding; and
• an award of interest is discretionary, therefore, interest ‘pursuant to the Civil Proceedings Act’ was inherently uncertain and made it impossible for the plaintiff to consider whether the offer was reasonable.

The defendant argued that both the Formal Offer and the Calderbank Offer were operative to displace the usual rule in respect of costs.

The decision

The Court found that both the Formal Offer and the Calderbank Offer operated to displace the usual presumption of costs and ordered:

• the defendant pay the plaintiff’s costs on a standard basis up to and including 21 June 2018; and
• the plaintiff pay the defendant’s costs on an indemnity basis after 21 June 2018.

The Formal Offer

Her Honour found, firstly, that the defendant’s Formal Offer was compliant with the UCPR because:

• while it did not specify an interest rate, the rate was ascertainable by reference to the CP Act; and
• the inclusion of non-monetary terms does not make an offer non-compliant with the UCPR. The constrained terms of the proposed deed being ‘reflecting terms in [the] Offer to Settle’ avoids the problems of uncertainty and ambiguity associated with other conditions usually worded ‘on terms to be agreed’.

Secondly, although there is no clear authority on the consequence of a single judgment amount in respect of a claim and counterclaim, and how that operates with respect to rr 360 and 361 of the UCPR, her Honour preferred the view of Chief Justice Holmes in Wiggins Island Coal Export Terminal Pty Ltd v Civil Mining & Construction Pty Ltd^[3] that, where there is a single judgment in respect of a claim and a counterclaim, it is not necessary to identify the separate components in respect of each to ‘trigger’ rr 360 or 361.

Finally, her Honour considered whether the plaintiff obtained an order that is more favourable to it than the offer.^[4] Her Honour found that the defendant had discharged the onus of showing the plaintiff did not obtain an order more favourable than the Formal Offer in circumstances where:

• the interest component of the Formal Offer is identifiable and calculable with certainty in accordance with usual practice (ie the CP Act); and
• the proposed deed of settlement was to be ‘mutually acceptable’ and was not limited to the defendant’s terms, which could have raised a potential disadvantage. As it was expressly stated that the deed would reflect the terms of the Formal Offer, the condition was sufficiently certain and could readily and easily be compared with the judgment.

The Calderbank Offer

The common question in relation to the Calderbank Offer was whether it was reasonable for the plaintiff to reject the Calderbank Offer. Her Honour said that what constitutes unreasonable rejection depends, in part, on whether the terms of the offer were clear and whether the offeree was able to undertake an assessment of its prospects of success. Her Honour concluded that:

• an offer inclusive of costs and interest may give rise to difficulties in the offeree assessing whether to accept an offer. However, those difficulties are not necessarily insurmountable; and
• while the defendant’s pleading did change from when the offer was made to what was ultimately pleaded at trial, the central issues raised in each pleading were the issues ultimately decided at trial.

The Court ultimately found that the defendant’s Calderbank Offer contained a genuine offer of compromise reflecting litigation risks to both the plaintiff and the defendant in respect of both the claim and the counterclaim.

Key takeaways

The following are useful takeaways from the decision to consider when preparing an offer, whether under the UCPR or in accordance with the principles enunciated in Calderbank.

When preparing a UCPR offer ensure you are not including non-monetary terms that are either not encompassed by the terms ‘proceeding’ or ‘claims’ in r 353, or that would make it impossible to determine whether the other party would obtain a more favourable result under the offer.

Unless you can be certain that a judgment involving a claim and counterclaim will result in only a single judgment amount (as in Built), it is best practice to specify the settlement in terms of the claim and the counterclaim, separately.

If it is intended that the parties execute a deed of settlement, ensure it is limited to reflecting only the terms of the formal offer and that it is on ‘mutually agreeable’ terms.

If possible, components of a Calderbank offer should be identified (ie damages, costs and interest) to avoid uncertainty and a possible argument that it was reasonable for the offer to be rejected.

When making a Calderbank offer, it is prudent to take the time to highlight to the opposing party weaknesses and issues with their case so that, if the time comes, ‘unreasonable refusal’ is more easily demonstrated.

Finally, remember the basic principles:

• if you are making an offer under the UCPR, check Chapter 9, Part 5 to ensure your offer complies with the rules; and
• In respect of Calderbank offers:
  • make sure correspondence is marked ‘without prejudice save as to costs’;
  • the correspondence should be stated to have been made pursuant to Calderbank v Calderbank;
  • ensure the offer is open for acceptance for at least 14 days;
  • make sure it foreshadows an application for indemnity costs if the offer is unreasonably rejected; and
  • set out the basis upon which the offer is a genuine attempt to settle the issues in dispute.

[1] Rule 681 of the UCPR.
[2] Mackinnon v Petersen (Unreported Court of Appeal Supreme Court of New South, Cole J, Wales 19 April 1989).
[3] [2021] QCA 8.
[4] Rule 361(1)(a) of the UCPR.