Offers of Compromise – take your medicine early

Key Points
  • Offers of Compromise / ‘Calderbank’ offers should be considered early
  • Any offers received must be considered properly

Malek Fahd Islamic School Limited v The Australian Federation of Islamic Councils Inc (No 2) [2018] NSWSC 361 related to the costs consequences that followed substantive proceedings between the plaintiff (MFIS) and defendant (AFIC) heard over 6 days.
 
The Court recorded the background as follows:
 
“In these proceedings, MFIS sought equitable relief against AFIC in relation to a number of properties that had been acquired in the name of AFIC for use as schools by MFIS and in relation to a number of other transactions entered into between MFIS and AFIC in respect of which it was alleged that AFIC had breached fiduciary duties that it owed MFIS. AFIC filed a cross-claim in the proceedings seeking the payment of rent said to be owing in respect of two of the properties, referred to as the Greenacre Property and the Hoxton Park Property, together with judgment in respect of a loan advanced by AFIC to MFIS.”
 
Before the hearing, on 24 October 2017, AFIC made an offer and, on 30 October 2017, made several admissions and offered to consent to orders against it that effectively amounted to a capitulation.  MFIS rejected this and countered with its own offer.
 
It was a further offer by AFIC 4 days later, on 3 November 2017 (D-Offer 2), however, that became the focus of the Court’s decision because:
  1. on 9 November 2017, the second of 6 hearing days, the Court made orders against AFIC consistent with AFIC’s admissions (but not quite as favourable as D-Offer 2); and
  2. MFIS persisted with the proceedings but failed to obtain a better result than what it rejected in D-Offer 2.
So the pivotal date became 3 November 2017. 
 
Further, although the offer had been open for another 4 days, it was rejected by MFIS the same day it was received.
 
The Court accepted that MFIS should have its costs up to that date (normally on a party-party basis) and was not persuaded that it should carve-out those costs that related to parts of the case that ultimately failed.  The exceptions to this included costs related to the cross-claim and the costs related to an expert (Ms Hoolihan) on the grounds that her report was not necessary and demonstrated “a real question whether Ms Hoolihan exercised the degree of independence required of any expert who purports to give evidence in accordance with the Expert Witness Code of Conduct [...]”.
 
Adopting a ‘broad brush’ approach, the Court ordered that AFIC pay 70% of MFIS’s costs up to and including 3 November 2017 (except for the expert).
 
The ‘tables were turned’, however, from that date, with the Court ordering that MFIS pay AFIC’s costs from 4 November 2017 and on an indemnity basis. MFIS tried to argue that it had not been in a position to assess the reasonableness of D-Offer 2, however, that submission was rejected.
 
Lessons Learned
  1. “Take your medicine early” and
  2. consider offers properly.
AFIC made appropriate admissions, “taking its medicine early”, and accompanied this with a ‘Calderbank’ offer.
 
The fact that MFIS rejected D-Offer 2 on the same day it was received suggests a degree of haste inconsistent with properly considering it.  In any event, it was found to have unreasonably rejected it. 
 
The end result for MFIS, the plaintiff:
  1. it lost 30% of its costs (and those for the expert) up to 3 November 2017;
  2. it lost 100% of its own costs thereafter; and
  3. it was ordered to pay the costs of the defendant (AFIC) from 4 November 2017 on an indemnity basis (often at or near 100%).

Post by Todd Porman

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