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Construction and Infrastructure case note: Calderbank Offers, Offers of Compromise and the Courts’ discretion as to costs

Dec 14, 2022

In New South Wales, the Civil Procedure Act 2005 (NSW) (the Act) provides that, subject to rules of court and to the Act or any other Act:

(a)     costs are in the discretion of the court;

(b)    the court has full power to determine by whom, to whom and to what extent costs are to be paid; and

(c)     the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis.

The Uniform Civil Procedure Rules 2005 (NSW) provide (rr 42.1 and 42.2) that costs follow the event and that costs are assessed on the ’ordinary basis’.

There are, however, potential exceptions to this general rule that may result in the award of costs assessed (partly or in whole) on an ’indemnity basis’.  Those exceptions may arise where a party:

  1. serves on the other party an offer in accordance with the principles enunciated in Calderbank v Calderbank [1975] 3 All ER 333 (a ’Calderbank Offer’); and/or
  2. serves on the other party an offer in accordance with the rules of the relevant court (an ’Offer of Compromise’); and
  3. the offer(s) are not accepted, and the offeree obtains an order or judgement on the claim that is no less favourable to that offered.

However, a recent decision of the Supreme Court of New South Wales serves as a timely reminder that the court’s discretion as to costs is absolute, and that the discretion will not be automatically exercised in respect of indemnity costs even when the elements described above (at (1) to (3)) have been satisfied.

Piety Constructions Pty Ltd v Hville FCP Pty Ltd [2022] NSWSC 1426

This decision deals with the question of costs. 

Our earlier case note in relation to the Court’s primary decision can be viewed here.

In short, in the primary decision the Court determined that the developer was entirely successful and that the summons filed by the builder be dismissed.

In this proceeding (dealing with costs), the Court heard that:

  • On 11 July 2022, the developer’s solicitors had sent to the builder’s solicitors a letter arguing that the builder’s case was bound to fail, essentially for the reasons that the Court ultimately found; and
  • On 20 July 2022, the developer served on the builder an Offer of Compromise and a Calderbank Offer, in which the developer offered to resolve the matter on the basis of a judgement in favour of the builder against the developer for $10,000 inclusive of GST (and, inferentially, of costs).

The developer applied for an order that its costs be paid on an indemnity basis from 21 July 2022 in circumstances where the developer had achieved a better result in the primary proceeding than its offer to the builder.

In determining that indemnity costs should not be ordered in the developer’s favour, and that costs of the proceeding should instead be ordered on the ordinary basis, the Court stated:

  • [at 8]: ’… I am not persuaded that it is appropriate in this case to order indemnity costs’;
  • [at 9]: ’The offer of $10,000 was, in the circumstances, an offer that the Builder capitulate’;
  • [at 10]: ’… the Builder’s contentions were by no means hopeless’;
  • [at 11]: ’As was pointed out on behalf of the Builder, there is no previous authority dealing with the particular circumstances of this case. I also accepted that there is some authority that could be seen as supporting the Builder’s argument’; and
  • [at 12]: ’Ultimately, I concluded that the “better view” was that which was advocated by the Developer’.

Take home points

Costs are in the discretion of the court.

In a situation where there is no previous authority dealing with the particular circumstances of a case, there is no guarantee that the Court will order that costs of a proceeding be paid to the successful party on an indemnity basis, even when a Calderbank Offer and an Offer of Compromise have been served. 

More information

For information about this case or for advice, please contact:

Darren Cain, Principal Lawyer and
Head of Construction and Infrastructure
(03) 8600 0701 or dcain@kcllaw.com.au

Dominic Brown, Senior Associate
(03) 8600 8851 or djbrown@kcllaw.com.au

Author

This Construction and Infrastructure case note was authored by Dominic Brown, Senior Associate.

Note: This update is a guide only and is not intended to constitute legal advice.