Strategic Settlement Offers Must Be The Real Thing

Summary

The court did not award a higher rate of costs to a defendant despite the outcome of the case being better than an early offer it had made.

Background

The plaintiff was a South African food supplements manufacturer trading under the brand name “The Real Thing”.  The Defendant acted as distributor for the plaintiff’s products in Australia.  The facts of the case are unimportant to the costs case, except to say that the plaintiff failed to make out allegations of: 1) Misleading and Deceptive Conduct; and, 2) Passing Off, and the proceedings were dismissed with costs awarded to the defendant.

Early in the proceedings the defendant sent an offer to the plaintiff that the proceedings be discontinued and each side should pay their own costs.  The offer purported to be a Calderbank offer in the hope that if the offering party was awarded a better outcome at trial, the court would award costs payable at a higher rate.

The defendant was awarded costs at the trial which was clearly a better outcome than walking away and having to pay for its own costs.  An application was therefore made for the defendant to receive the higher rate of costs.

Unfortunately for the defendant a Calderbank offer is not a guarantee that the higher rate will be awarded.  The court pointed to the case of Commonwealth of Australia v Gretton [2008] NSWCA 117 as an example. The key considerations for the court were whether the offer under consideration was in its opinion: 1) a genuine offer to compromise; and, 2) refusing the offer was unreasonable.

Decision

In this case the court decided that an offer early in the proceedings, before the pleadings had closed and before evidence was served, could reasonably be refused.  The court said the plaintiff was, in the circumstances, entitled to await developments before abandoning its case.

Commentary

The case highlights that offers to settle, even Calderbank offers, do not necessarily lead to an improved costs order.  Consideration is needed about the timing and the content of such offers because they must: 1) genuinely attempt to settle the matter; and, 2) be unreasonable for the receiving party to refuse.  The court will look for both of the elements in any offer to settle when considering whether to award the higher rate of costs.  Offers without these elements are of limited strategic advantage.

The Real Thing Food Supplements CC v Media Tag Pty Ltd (No 2) [2018] NSWSC 850