What is a responsible rejection of a Calderbank Offer: Victorian WorkCover Authority v O'Brien

Importantly, it supports prior authority that a Calderbank offer to withdraw and bear own costs may be characterised as a demand to capitulate which, in certain circumstances, may be reasonably refused.

Facts

The Victorian WorkCover Authority (VWA) failed in its claim against O’Brien for recovery of payments made to or on behalf of a worker under s 138 of the Accident Compensation Act 1985 (Vic). O’Brien had served a Calderbank offer on the VWA prior to the matter going to trial noting, amongst other things, the difficulties he felt the VWA would face establishing causation at trial and, in doing so, offered to bear his own costs if the VWA discontinued the proceeding. The VWA rejected the Calderbank offer, failed in its proceeding against O’Brien and O’Brien subsequently sought solicitor-client costs.

The relevant considerations

The court reiterated that the critical question when determining whether a refusal of an offer is reasonable is whether the rejection of the offer was unreasonable in the circumstances.¹ It affirmed the Hazeldene principles which the Court should consider, being:²

• 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 an indemnity costs in the event of the offeree’s rejecting it.

In light of the Victorian Court of Appeal case, Commissioner of State Revenue v Challenger Listed Investments Ltd (No 2), the Court observed that an offer which does not represent a genuine compromise may fail the reasonableness test as it may, instead, be an invitation to capitulate.³ It referenced Berrigan Shire Council v Ballerini (No 2) where, in that case, the court characterised the offer to “walk away” as a demand to capitulate which could be reasonably rejected.⁴ Similarly, the court in Truenergy Pty Ltd v Dispute Resolution Panel (No 2) considered that a Calderbank offer should be attractive and not merely comprise a demand to capitulate.⁵ Further, it is important to note the similar reasoning of Williams v Katis where the court held that the case was not so hopeless as to justify acceptance of an offer, in effect, to capitulate.⁶

Applied to the circumstances of this case, the court held that VWA had acted reasonably in rejecting the Calderbank offer as:

• At trial, VWA established that a duty of care was owed and that the duty was breached. VWA only failed on establishing causation and, at the time the Calderbank offer was served, it was entitled to think that it had a reasonable prospect of success (given the expert evidence that had been served in the proceeding); and that
• The lay and expert evidence relating to causation could not be properly analysed until the underlying facts were determined which depended on what happened at trial.

Accordingly, the court concluded that it was not unreasonable for VWA to reject the Calderbank offer which was, in effect, an offer to capitulate. The costs application by O’Brien was rejected and costs were awarded on a standard basis.

Relevance for practitioners

The case reiterates the importance, in Victoria, of the Hazeldene factors when assessing whether the refusal of an offer is reasonable. It also indicates that an offer to capitulate is unlikely to be entertained by a court in relation to a costs application when the offeree is entitled to consider that it has a reasonable prospect of success at the time the offer is made.

This article was written by Craig Down, Partner and Ashton Broadhurst, Trainee Solicitor. 

¹(2017) VSC 68, 6.
²Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No2) (2005) 13 VR 435.
³(2011) VSCA 398.
⁴(2005) 13 VR 111.
⁵(2009) VSC 612.
⁶(2014) VSC 471, 24.