If you have ever litigated, you may have received a Calderbank Offer. The Calderbank Offer may have prompted you to question whether a bad settlement is better than pursuing a costly trial and the risks of losing the case and paying costs on an indemnity basis. The judgment in Metricon Homes Pty Ltd as trustee for Metricon Homes Unit Trust v Lipari (No 2) [2024] NSWSC 684 provides some crucial lessons for litigants who are considering accepting a Calderbank Offer or are planning to make a Calderbank Offer to a another party.
Calderbank Offer
Following the principles set out in the United Kingdom Court of Appeal decision of Calderbank v Calderbank [1975] 3 All ER 333, where a Calderbank Offer is unreasonably rejected by the offeree who subsequently obtains a less favourable result than the Calderbank Offer, the offeror may rely on the Calderbank Offer to seek recovery of its legal costs on an indemnity basis.
What constitutes an “unreasonable rejection” of a Calderbank Offer? This question was considered in the Metricon Homes case.
Metricon Homes Pty Ltd as trustee for Metricon Homes Unit Trust (“Metricon”) v Lipari
The dispute
Between 2017 and 2018, Metricon built a house for Mrs Lipari in Leppington, NSW. Disputes arose, and Metricon started proceedings, claiming the unpaid balance of the contract price. Mrs Lipari contended that, although the balance of the contract price remained unpaid, she was entitled to set off her liability to pay the contract price due to a defect in the property’s concrete slab designed by a subcontractor (Zanuttini) and several other defects in the house, some of which Metricon accepted. In addition, Metricon brought a crossclaim against Zanuttini for defective structural design in the concrete slab.
The NSW Supreme Court found that Metricon was successful in its claim for the unpaid balance of the contract price, while Mrs Lipari was successful in her claims regarding the concrete slab and some of the other defects claimed. On the other hand, Zanuttini was liable to Metricon for the defect in the concrete slab.[1]
The Calderbank Offers issue
When it came to deciding the costs of the proceedings[2], several issues were considered by the Court. One issue was whether the Calderbank Offers served by the parties provided a basis for the award of indemnity costs in favour of any party.
Three Calderbank Offers had been made by the parties, namely:
- a Calderbank Offer made by Mrs Lipari to Metricon while construction works were still ongoing (and before proceedings were commenced). Under that Calderbank offer, Mrs Lipari offered to take possession of the house and release Metricon from a claim by Mrs Lipari for breach of the contract. Mrs Lipari said Metricon had breached their contract by building her house in the wrong location (i.e. not for defective work). Under Mrs Lipari’s Calderbank Offer, Metricon would give up its claim for the unpaid balance of the contract.
- A Calderbank Offer made by Metricon to Mrs Lipari during the proceedings to settle all claims between them on the basis that Metricon would pay $250,000 to Mrs Lipari, and she would indemnify Metricon against any claims by Zanuttini against Metricon with respect to the property or the concrete slab.
- A Calderbank Offer made by Metricon and Zanuttini to Mrs Lipari during the proceedings to settle all claims on the basis that both Metricon and Zanuttini would pay $400,000 to Mrs Lipari.
The Court pointed out first that none of the parties were completely successful in the proceedings. Then, regarding the Calderbank Offers, it concluded that none of the proposals provided a basis for an award of indemnity costs due to the following reasons:
- The first Calderbank Offer, which was the offer extended by Mrs Lipari to Metricon, was not unreasonably rejected by Metricon because when the first Calderbank Offer was issued, Mrs Lipari had not raised any claim against Metricon for defects. As a result, that part of the claim was not addressed in the offer. Further, Metricon was successful in its claim for the unpaid sum of the contract. Mrs Lipari had only reduced, but not eliminated, the amount due to Metricon by her offsetting claims. The offer therefore did not provide grounds for an award of indemnity costs.
- The second Calderbank Offer, which was the offer extended by Metricon to Mrs Lipari, would have been found to be a reasonable offer but for an indemnity contained in that offer which required Mrs Lapari to indemnify Metricon against any and all claims by Zanuttini arising from, or in connection with the property or the slab. There was no cap on the quantum of the proposed indemnity. The Court considered that the rejection of the second Calderbank Offer was not unreasonable because if Mrs Lipari had accepted that offer, the indemnity clause would have exposed Mrs Lipari to an uncertain liability.
- The third Calderbank Offer, from both Metricon and Zanuttini to Mrs Lipari, was made on the last business day before the hearing and was only open for less than two business days. Part of the basis for this offer came from an expert report that was served the day before the offer was made and which allegedly introduced new matters to the trial. Consequently, the Court determined that Mrs Lipari did not have an adequate opportunity to consider all of the issues in the report and deal with the offer. Therefore, her refusal was not unreasonable.
Lessons to be learned
If you receive a Calderbank offer or are planning to make a Calderbank offer, there are a few things that you should keep in mind.
First, make sure that the offer concerns the same claim you are pursuing or will pursue in court.
Second, make sure that any liability created by the offer is certain. If the offer contains an indemnity against third-party claims, consider whether there should be a cap on the quantum or a limit to the scope of the indemnity to avoid imposing uncertain liabilities.
Finally, do not forget that the offeree has to be given reasonable time to consider the offer. What is a reasonable time will depend on the circumstances in which the offer is made.
If you would like to discuss this article with us, please contact Brett Vincent, managing partner, or Luis Garzon, foreign construction lawyer on (02) 9261 5900.
[1] [2024] NSWSC 566.
[2] [2024] NSWSC 684.