When Confidentiality is Worth More than Indemnity Costs

In the recent decision of Bailey v BMW Sydney Pty Ltd & Anor (No. 2) [2020] NSW DC139 the District Court refused to make an order that the plaintiff pay indemnity costs to the defendant.  The defendant had served several Calderbank offers, any of which would have been a better outcome for the plaintiff than the final judgment.  
Briefly, the general principle is that if the party serving a Calderbank offer achieves a better outcome at trial than was being offered, the party that refused the offer may be ordered to pay costs on an indemnity basis.  An indemnity costs order means that the paying party is likely to pay a larger contribution to the receiving party's costs than would normally be the case.  However, an indemnity costs order will not be made if it was reasonable, in the circumstances of the particular case, for the Calderbank offer to be rejected.
In this case, counsel for the plaintiff argued that it was reasonable to reject the Calderbank offers made on 14 March and 23 April 2018 because those offers included the requirement for a "non-disparagement and confidentiality" clause. That clause was not something that the Court could order in the present case and therefore it was reasonable to refuse the offer.  The defendant's counsel argued that the requirement for a "non-disparagement and confidentiality" clause did not invalidate the offer.
The Court accepted both arguments but also noted that the clause was of particular commercial importance to the defendant, and that the defendant had rejected a counter offer by the plaintiff to make "reasonable endeavours" not to disparage the defendant and to maintain confidentiality.  It was therefore the defendant's position that no monetary compensation would be paid without the required clause - the Court refused to make an indemnity costs order.
On 10 October 2019 the defendant made a further offer that required "execution of a settlement deed" but did not enclose the proposed deed.  Without the deed the Court determined that the 'final version' of the offer had not been provided to the plaintiff.  What had been provided was not capable of acceptance.  If the offer was not capable of acceptance then there would be no entitlement to indemnity costs.
When making a Calderbank offer for the purpose of cost protection it is important to remember that the Court will consider the all relevant circumstances before ordering indemnity costs.  The party making the offer may have particular reasons for insisting on a clause being drafted in a particular way, but carefully consideration should be given to any reasonable alternative as it could impact on a future application for indemnity costs.  
This case also highlights the importance of ensuring that a 'complete offer' is made rather than an in 'principle offer' subject to an unattached deed.  It is not unusual for a Calderbank offer to be subject to the execution of a deed, but if that offer is to be used to support an application for indemnity costs, it is imperative that the offer includes a copy of the deed so that the receiving party can consider the whole proposal.
 

 
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