Considerations concerning settlement offers

The Plaintiff brought a claim against the Defendant for the unpaid amount and the Defendant brought a cross-claim for the alleged building defects inter alia a defective concrete slab, and she also brought the cross-claim against Rafeletos Zanuttini Pty Ltd, the manufacturer of the concrete slab (the Cross Defendant).

In the primary judgment, his Honour found:

1. for the Plaintiff that the Defendant owed the Plaintiff the unpaid contract price in the amount of $93,257.10 (which after interest totalled $159,758.35);
2. for the Defendant, against both the Plaintiff and the Cross Defendant, in respect of the defective concrete slab and assessed damages in the amount of $55,020.40 (which after interest came to $73,100.11);
3. for the Defendant against the Plaintiff in respect of other general building defects and assessed damages in the amount of $54,845.00 (interest was not allowed);
4. the Defendant may offset the unpaid contract amount with damages in connection with the building defects;
5. the Cross Defendant is to indemnify the Plaintiff for the damages in connection with the defective concrete slab; and
6. found for the Plaintiff in respect to a misleading or deceptive conduct claim bought by the Defendant against the Plaintiff.

Accordingly, the net payable amounts were:

1. the Defendant to the Plaintiff in the amount of $31,813.24; and
2. the Cross-Defendant to the Plaintiff in the amount of 73,100.11.

Each of the parties then sought recovery of their costs on an indemnity basis – which this decision inter alia considered – having each served a Calderbank letter which were subsequently rejected or not accepted – as follows:

1. from the Defendant to the Plaintiff, a “walk-away” offer (made by the Defendant before she took possession of the house);
2. from the Plaintiff to the Defendant, that the Plaintiff pays the Defendant an amount of $250,000 and the Defendant indemnifies the Plaintiff in respect to any claim against the Cross Defendant (made on 01 March 2024, ahead of the hearing commencing on 08 April 2024, and open for a period of 14-days); and
3. an offer from the Plaintiff and Cross Defendant to the Defendant in the amount of $400,000 (made on 05 April 2024, and open until 9:00AM on 08 April 2024.).

Unsurprisingly, it was found the Defendant’s offer did not attract indemnity costs – his Honour applying E Group Security Pty Ltd v Chief Commissioner of State Revenue (No 2) [2021] NSWSC 1296 at [61] per Ward CJ in Eq that for a rejected offer to attract indemnity costs, it “must show that it was a genuine offer, which was capable of acceptance, and that it was unreasonable for the offeree not to accept it” [at 28]. As the Defendant’s offer, made before the Defendant even took possession of the house, was not even made in connection with the defects in her Cross-Claim, it was not unreasonable for the Plaintiff to have not accepted it [at 29, 32 – 33].

Surprisingly however, the Plaintiff’s and the Cross Defendant’s offers were also found to not attract indemnity costs.

Offer of 1 March 2024

In respect of the offer made 1 March 2024, arguments made by the Defendant that this offer did not attract indemnity costs included that it was too close to hearing and that her costs had exceeded the offered amount. These arguments were rejected by the Court. However, his Honour accepted the Defendant’s argument that the condition in the offer that the Defendant indemnify the Plaintiff against the Cross Defendant was difficult to assess and it was not unreasonable for the Defendant to reject this offer, and accordingly, her rejection did not attract indemnity costs.

Offer of 5 April 2024

The offer of 5 April 2024 plainly exceeded the primary judgment. However, that does not mean it was unreasonable for the Defendant to not have accepted it – his Honour following Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322 at [99] per McColl JA – as whether rejecting an offer is reasonable or unreasonable includes whether there was an adequate opportunity to consider the offer. This offer, of 05 April 2024, had relied upon inter alia a report that was freshly served on 4 April 2024, and it was found not unreasonable that the Defendant rejected an offer that:

1. was open for only one business day; and
2. relied on a report freshly served a day prior.

It is worth noting that this freshly served report was allowed at hearing on the basis that the Defendant’s expert was given the time and opportunity to respond to this new evidence, which subsequently occurred, and that this fresh report was material to the primary judgment.

It follows that his Honour found that none of the offers attracted indemnity costs. The Court additionally found there should be no orders as to costs, with his Honour observing there were many issues in these proceedings resulting in a “mix outcome for all parties to the proceedings” [at 68] and did “not consider it is desirable to make issues-based costs orders, as these will likely increase significantly the time and costs required for any assessment process, which is not in the interests of any of the parties. [at 66]”

Useful take aways from the judgment in connection with making settlement offers are that they:

1. must actually release the other parties from the pleaded causes of action in a claim
2. should be made clearly and without conditions or implications that are difficult to assess;
3. should not rely on evidence served out-of-time; and
4. should be made with enough time for the offeree to reasonably consider it.

Matthew Lo is Special Counsel at Kerin Benson Lawyers and a member of the Law Society of NSW’s Costs Committee