November 11, 2024
This week we discuss the case of Paladin Projects Pty Ltd v Visie Three Pty Ltd & Ors (No 2)
[2024] QSC 244 highlighting the importance of evaluating the making and rejection of settlement offers (i.e., Calderbank offers). The Supreme Court of Queensland ruled that a contractor’s failure to accept a Calderbank offer was unreasonable, leading to an award of indemnity costs despite the offer being open for only six days.
1. Background
Visie Three Pty Ltd (Visie) engaged Paladin Projects Pty Ltd (Paladin) as contractor for the design and construction of 36 townhouses, along with certain civil works.
After a payment dispute, an adjudicator issued a determination in May 2024, which Paladin challenged in the Queensland Supreme Court. The Court largely found in favour of Visie, though Paladin succeeded in part on a jurisdictional issue. A costs decision arose in relation to the judgement.
Of relevance to this case was that a Calderbank offer was made by Visie to Paladin 12 June 2024. The offer remained open for acceptance until 18 June 2024 and Paladin received Visie’s written submissions on 14 June 2024, leaving two working days for Paladin to consider the offer together with the submissions. Paladin did not accept the offer.
The key issue in this case was whether the Calderbank offer provides a basis for the Court to award costs on an indemnity basis.
2. Calderbank Offer and Cost Orders
Under Queensland’s civil procedure rules, costs typically ‘follow the event’, meaning the unsuccessful party will generally be required to pay the costs of the successful party on a standard basis. However, the Court may award indemnity costs if it determines that rejecting a Calderbank offer was ‘unreasonable’.
A Calderbank offer is a settlement proposal made during a dispute, notifying the other party that, should the court’s judgement be less favourable than the offer, the offering party may be entitled to an indemnity costs order. It is the responsibility of the party seeking indemnity costs to demonstrate that the other party’s rejection was unreasonable.
To be a valid Calderbank offer, it must at a minimum:
(a) be marked “without prejudice save as to costs”;
(b) state that it is made in accordance with the principles in Calderbank v Calderbank;
(c) be clear, precise and certain in its terms, and capable of being accepted;
(d) remain open for acceptance for a reasonable timeframe (typically 14 days, though this may vary depending on the case’s circumstances);
(e) provide reasons why the offer should be accepted; and
(f) clearly state that, should the offer be rejected, it will be relied upon in any subsequent application for indemnity costs.
Offers can be made early (even before proceedings begin) or late in the process. If successful, indemnity costs will typically apply from the date the offer was made (therefore timing is important). However, early offers may be treated cautiously if there has been limited opportunity to assess the opposing party’s case.
While the terms of the Calderbank offer must be more favourable than the final judgement, it is not the only factor considered by the court in determining whether to award indemnity costs. The court must decide that the rejection of the offer was unreasonable in all of the circumstances, including having regard to the factors identified above.
3. Arguments before the Court
Paladin’s Position
Paladin’s primary position was that there should be no cost order against it or alternatively, any order for costs to Visie should be on a standard basis (not an indemnity basis) as Paladin was successful in part and its position to reject the Calderbank Offer was reasonable.
Paladin argued it did not act unreasonably as:[1]
(a) Its position was at least arguable and it succeed on ground 2 (variation 61);
(b) The Calderbank Offer was not more favourable than the final orders, as it still meant receiving “nothing”;
(c) The offer was made only seven days before the hearing and came before Visie’s submissions were received; and
(d) There was no evidence that refusing the offer was unreasonable or imprudent.
Visie’s Position
Visie argued that Paladin acted unreasonably in not accepting the Calderbank offer as it would have been in a more favourable position than under the final orders. As a result, this warrants a departure from the usual order as to costs (i.e., meaning that costs should be awarded on an indemnity basis).
In arguing this position it relied upon the principals by Bond J (as his Honour then was) in S.H.A Premier Constructions Pty Ltd v Niclin Constructions Pty Ltd (No. 2),[2] specifically addressing six key factors regarding the Calderbank Offer:
(a) Timing: The offer was made on 12 June 2024, six business days after the Applicant received the Respondent’s submissions and seven days before the hearing. It was made less than a month after the proceeding began;
(b) Time to Consider Offer: Paladin had sufficient time to consider the offer, especially with the benefit of Visie’s written submissions received two days after the offer;
(c) Extent of the Compromise: The offer conceded Grounds 1 and 2 (related to variations 60 and 62), providing a genuine compromise that would have left Paladin in a better position than proceeding to hearing;
(d) Prospects of Success: Paladin had enough information to assess the case’s strengths and risks, particularly with Visie’s detailed submissions highlighting weaknesses in the Paladin’s claims (most of which were accepted by the Court);
(e) Clarity of the Offer: The terms of the Calderbank Offer were clear and unambiguous; and
(f) Indemnity Costs: The offer explicitly reserved the right to seek indemnity costs if rejected.
4. Decision
Justice Williams held that Paladin’s rejection of the Calderbank Offer was unreasonable and justified a departure from the general costs rule in r 681 of the UCPR[3], and awarded costs in the proceeding:
(a) on a standard basis until 12 June 2024; and
(b) on an indemnity basis from 12 June 2024.[4]
In its finding, the Court agreed with Visie’s analysis of the six factors from S.H.A. Premier Constructions Pty Ltd and stated:
i. Assessment of Success: While Paladin’s grounds were arguable, it still needed to assess its prospects and potential costs exposure before trial;
ii. The Calderbank contained a genuine compromise of the proceeding and (if accepted) was clearly more favourable that the outcome in the final orders;
iii. Reasonableness of Time: While the offer was only open for six days, through the BIF Act procedure the matters in dispute had been clearly identified through payment claims, payment schedules, adjudication application, adjudication response and the adjudication decision, such that the issues and legal principles were sufficiently known at the time of the offer to enable Paladin to weigh up the risks of proceeding to trial;
iv. While the offer lacked detailed reasoning and came before Visie’s submissions, those submissions were provided soon after, and Paladin had time to assess them; and
v. Paladin was legally advised and should have been aware of the risks of rejecting the offer, including the potential for indemnity costs if it failed to “better” the offer at trial;
5. Legal Support
Ultimately, this case highlights the uncertainty of the protection offered to parties when Calderbank offers are in play. If you find yourself in a circumstance involving a Calderbank offer (whether receiving, or issuing), it is recommended you seek legal advice so as to ensure you are considering all of the risks associated with either rejecting or accepting an offer, or ensuring your Calderbank is valid. Notably, even though it was held in this case that a short time frame for acceptable was reasonable, to ensure you are best protected it is recommended the offer is left open for 14 days.
The team at Lamont Project & Construction Lawyers team have extensive knowledge and experience assisting parties in preparing and considering the risks associated with Calderbank offers. With this knowledge and expertise, Lamont Project & Construction Lawyers can provide the required support and advice to assist at any stage in the dispute process.
If you have questions about your current or future projects or disputes, please feel free to reach out to us. We would be happy to discuss how we can assist you.
Contact: Peter Lamont or Stephanie Purser
Email: [email protected] or [email protected]
Phone: (07) 3248 8500
Address: Suite 2, Level 2 349 Coronation Drive, Milton Qld 4064
Postal Address: PO Box 1133, Milton Qld 4064
[1] Paladin Projects Pty Ltd v Visie Three Pty Ltd & Ors (No 2) [2024] QSC 244 at [12].
[2] [2020] QSC 323 at [8] – [14].
[3] Paladin at [40].
[4] Paladin at [7].