Consequences of withdrawing a Calderbank offer: learnings from Karageozis vs Sherman

The recent Supreme Court of Queensland case of Bill Karageozis as trustee for the bankrupt estate of Siobhan Lamb v Sherman [No 2] [2024] QCA 12 (Karageozis) has provided important commentary on the application of Calderbank offers in costs orders, specifically in circumstances where a Calderbank offer is withdrawn prior to the stated deadline for acceptance of the offer.

What are Calderbank offers?

A Calderbank offer, named after an English Court of Appeal decision, is an offer of settlement that one party makes to the other during a dispute. There are several requirements that must be satisfied for an offer to constitute a Calderbank offer, one of which is the offer must be made on a ‘without prejudice save as to costs’ basis. This means the offer may only be relied upon and presented to the court after judgment has been made and the court is to determine how the parties’ legal costs are to be paid.

Legal costs

After a judgment is made, the court has the discretion to make costs orders, such as for parties to pay their own costs of the proceeding or for one party to pay the other party’s costs on a general or indemnity basis. In exercising such discretion, the court will consider the parties’ conduct during the proceedings, including any offers that have been made or if a party has acted unreasonably or improperly.

Generally, the party that loses a case will be required to pay the winning party’s legal costs on an ordinary or standard basis, which will often constitute between 60% to 75% of the actual costs the winning party has incurred. However, in certain circumstances, the court may order that a party (including, potentially, the winning party) pay the other party’s costs on an indemnity basis, which will result in a higher percentage of the actual costs incurred being paid.

One circumstance in which indemnity costs may be ordered is where one party has made a Calderbank offer to settle a dispute and the other party has unreasonably failed to accept the offer, such as where the terms of the offer are no less favourable than the court’s order or judgment. The court may subsequently order that the party who made the offer has its costs paid on an indemnity basis from the date of the offer.

Taking a closer look at Karageozis

In Karageozis, the appellant had made a Calderbank offer that stated the offer would remain open for 14 days, being until 16 July 2021. The appellant subsequently withdrew its offer early on 12 July 2021.

The appellant submitted the offer had been open for a week and a half and there seemed to be no basis to suppose that the respondent would have accepted the offer had it not been withdrawn early. Accordingly, the appellant sought its costs on an indemnity basis.

The Supreme Court highlighted that the question is not whether it would have been sensible for the respondent to accept the offer, but rather whether it was unreasonable for the respondent to fail to accept the offer. The Court considered that the appellant could not prove the respondent had unreasonably failed to accept the offer as the respondent would reasonably have assumed he had until the date specified in the letter to consider and accept the offer. Accordingly, the appellant was not granted its costs on an indemnity basis.

Key takeaways

In making a Calderbank offer, it is important to consider any subsequent actions that may impact the offer. Particularly, should a party want to withdraw an offer or reduce the time for acceptance of an offer, it should be remembered that such action will be considered by the court in determining costs and, as was the case in Karageozis, may result in a party being unable to receive indemnity costs after judgment is made.

Navigating negotiations?

We regularly advise and act for clients in without prejudice negotiations. If you have any questions on negotiation tactics or would like assistance, please contact Mark Schneider, Brit Ibanez, Chris Hood or Georgina Buckley from our litigation and dispute resolution team.