So what if I ignore a Calderbank offer regardless of case merits?

In Bright Gold Limited v Mega Well Development Limited (HCA 2194/2011), Hon Anthony Chan J, amongst other things, dismissed Mega Well’s counterclaim against a law firm previously acting for it in the sale and purchase of a landed property and made a costs order nisi that Mega Well pay for the law firm’s costs (on a party and party basis). Upon the law firm’s application to vary the costs order nisi, the Court, in exercising its discretion as to costs, considered (i) the underlying objectives set out in Order 1A, rule 1 of the Rules of the High Court (including “to facilitate the settlement of disputes”), (ii) two Calderbank offers made by the law firm which Mega Well failed to beat, (iii) the merits analysis which the law firm drew to Mega Well’s attention, (iv) the conduct of the parties, and (v) damage to the law firm’s reputation, and ordered Mega Well to pay for the law firm’s costs in the proceedings on an indemnity basis.

The Calderbank Offers

(1) 

Under the 1st Calderbank offer (1st Offer), the law firm offered to have Mega Well’s counterclaim against the law firm dismissed with payment of 50% of the law firm’s costs. The letter containing the 1st Offer set out an analysis of the merits of Mega Well’s counterclaim.

(2) 

Under the 2nd Calderbank offer (2nd Offer), the law firm suggested that Mega Well’s counterclaim be dismissed with no order as to costs.

Court Findings

(1)

It is reasonably well-established that the Court’s discretionary power to award indemnity costs can be triggered if a party fails to beat a Calderbank offer.

(2) 

The merits analysis set out in the 1st Offer was largely vindicated by the Court as shown in the judgment. It would have been advisable for Mega Well to accept certainly the 2nd Offer.

(3) 

In light of the law firm’s merits analysis, it was unreasonable for Mega Well to have failed to engage in any negotiation with the law firm to put an end to this part of Mega Well’s case.

(4) 

With the underlying objectives in Order 1A, rule 1 in mind, the Court encourages dispute settlement, and therefore failure to respond constructively to a reasonable Calderbank offer, coupled with the subsequent failure to beat the offer, should weigh heavily against the offeree on costs.

(5) 

Mega Well’s case against the law firm was damaging to their professional reputation. The costs order sought would provide a fairer result to the law firm.

Lessons to be learnt

(1) 

Whilst in principle the Court’s discretion to award costs on an indemnity basis can be triggered by a party’s failure to beat a Calderbank offer, it seems that the Court in practice will not only look at the content of the Calderbank offer and compare it with the Court’s findings, but also look at why those settlement terms were initially put forward and whether it was unreasonable for a party to refuse to accept the offer.

(2)

A party is expected to have due regard to the merits of the case (in particular when specifically drawn to its attention), consider the reasonableness of settlement offers and engage in constructive settlement negotiations, even if the settlement offers are not entirely acceptable, failing which the court will have a strong inclination to make costs orders against it, if and when it fails to beat the settlement offers.

(3)

This case applies the legal principles on costs applied in Sam Sien San Albert v Sam Mo Yee (HCMP 1203/2016). For details, please refer to our previous article about issues relating to settlement offers, “So what if I ignore a Calderbank offer unacceptable to me?