Kemp v Ryan & Anor [2012] ACTCA 12

Legal Directions

This recent decision in the ACT Court of Appeal has highlighted the need to ensure that any Calderbank offer is precisely drafted, unambiguously clear and conforms to the relevant legal principles. Failure to conform to the above requirements can render a Calderbank offer ineffective.

Introduction

On 5 March 2012, Penfold, Burns and Marshall JJ, in the ACT Court of Appeal, upheld the Master’s finding that an intended Calderbank v Calderbank offer did not constitute a proper Calderbank as it was not unambiguously clear and certain.

The case concerned a building dispute. Kemp commenced in the Supreme Court following a dispute over alleged unpaid work valued at $64,228 plus interest calculated at the rate of 20% on late payments under the contract. The parties eventually filed consent orders including a judgment for Kemp in the sum of $53,330 plus contractual and post-judgment interest. The orders sought a hearing in relation to costs.

Supreme Court decision

Before the Master, Kemp sought indemnity costs and relied on a letter dated 6 September 2008 making an offer in the following terms:

This offer is made pursuant to the principles of Calderbank v Calderbank and will remain open for acceptance to 7 October 2008, whereupon it will lapse.

  1. The plaintiff will accept $53,146 in settlement of his claim (this comprises the contract sum due, plus all provisional and prime costs items and variation no. 6 for additional roof tiling).
  2. Plus interest at 20% in accordance with clause 21 of the contract until that money is paid.
  3. Plus costs as agreed or assessed.

We advise that our solicitor-client costs and disbursements are $48,828 to date.

Clause 21 provided that Kemp was entitled to interest on progress payments not received by their due date at the rate of 20%.

The Master held that the letter did not support the entitlement to indemnity costs because paragraph 2 was relevantly ambiguous. The Master considered the paragraph was susceptible to a number of interpretations regarding the date from which interest would run and as to the principal amount on which interest was to be paid. Also the Master concluded that paragraph 2 was imprecise as to whether the offer contemplated:

  • Interest to be payable from the entry of judgment until payment calculated at 20% rather than the rate prescribed by the Court Procedures Rules (11%);
  • The defendant was to pay interest at 20% on some or all of the settlement amount up to judgment.

Further, the Master held that it was unclear from the final paragraph whether Kelly was offering to accept solicitor-client costs or party-party costs. He stated:

I would have had no difficulty in reading paragraph 3 of the offer as limited to party-and-party costs, but the addition of the final paragraph adds some confusion to that interpretation.

The Master exercised his discretion not to award indemnity costs on the basis that the offer was not unambiguously clear and therefore did not meet the requirements of a valid Calderbank offer.

Court of Appeal decision

Justices Penfold, Burns and Marshall upheld the Master’s reasoning and found that paragraph 2 was ambiguous and confusing, both in regards to commencement time and the amount on which interest was to be paid. The Court of Appeal also found that the Master’s comments regarding the ambiguity surrounding the paragraphs of the offer concerning costs were not unreasonable.

The judges applied Perry v Comcare [2006] 150 FCR 319 to conclude that if reasonable minds might differ as to the meaning of paragraph 2, then it was impossible to say that the Master’s view that paragraph 2 was ambiguous was unreasonable and thus an error.

Further, in reaching their decision, the Court noted that to succeed in an appeal from a discretionary judgment it was necessary to demonstrate that the trial judge erred when exercising his discretion per House v The King (1936) 55 CLR 499.

In this regard, Kemp argued that the Master’s failure to properly exercise his judgment could be inferred from the fact that the Master’s construction of the letter offer was unreasonable, specifically, that the Master had misconstrued the ordinary language in which the letter was drafted. In support of that submission Kemp pointed to the fact that the alleged ambiguity had not been raised by Ryan until long after the offer had lapsed.

The Court held that it was irrelevant that the issues of ambiguity were not raised until after the Calderbank offer had lapsed. What was important was that the offer must be objectively clear.

The letter was not found to constitute a valid Calderbank offer and could therefore not be used in the appellant’s argument for indemnity costs.

Conclusion

There are a number of well established principles which must be followed to ensure a Calderbank offer is effective. Specifically, Calderbank offers should:

  • Be a genuine compromise
  • Have the heading ‘without prejudice save as to costs’
  • State that, should the offer be rejected, the letter may be tendered on the question of costs
  • Provide a period of time for which the offer will remain open
  • Explain why the offer should be accepted
  • Address the question of costs payable separately to the principal sum of the offer
  • In line with this judgment, contain terms that are precise, clear and unambiguous.

A failure to adhere to the above requirements may render any Calderbank letter ineffective.

Authored by Amanda Gilkes, Lawyer, Canberra.


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