Costs and Calderbank offers - the Court of Appeal's view

Last month, the Court of Appeal overturned a costs award against an employer on the basis of a "Calderbank" offer (without prejudice save as to costs), which the employer had made several months prior to the hearing (Bluestar Print Group (NZ) Ltd v David Mitchell [2010] NZCA 385).

Mr Mitchell succeeded in a claim for unjustified dismissal against Bluestar and sought his costs against the company. He contended that the company's previous settlement offer, which was purely monetary, should not be taken into account, because it did not adequately vindicate him. Rather, he was seeking some acknowledgement of wrongdoing from the company.

The Court of Appeal disagreed. It found that the offer was for a reasonable amount and thus, in itself, conveyed a distinct element of vindication to Mr Mitchell.

Importance for employers

For employers, the decision is helpful authority that a Calderbank offer to pay reasonable compensation, without any apology or admission of wrongdoing, can provide sufficient vindication to an aggrieved employee.

The Court of Appeal confirmed that such an offer is relevant to the issue of costs (post offer) where the employee succeeds in the claim but fails to achieve more than the offer at the hearing. In such circumstances, the court can reverse the usual costs position and deprive the successful litigant of costs.

However, the Court of Appeal commented that costs assessments should not be confined solely to economic considerations. An employee seeking vindication through a statement of principle could be relevant to determining costs.

When formulating a Calderbank offer, employers would be prudent to consider:

  • What is reasonable compensation in the circumstances;
  • The timing of the offer – the Employment Court Regulations expressly refer to such an offer being made a reasonable time before the hearing; and
  • Whether or not an acknowledgement of wrongdoing or form of apology is appropriate in the circumstances.

What is a Calderbank offer?

"Calderbank offer" derives its name from a 1950s English matrimonial property dispute between Mr and Mrs Calderbank, in which the court recognised the relevance to assessing costs of a reasonable pre-trial settlement offer.

It is an offer of settlement "without prejudice save as to costs". This means that the offer is privileged until the end of the substantive litigation when the court determines any award for costs.

Calderbank offers are now a common feature of litigation in New Zealand, and employment disputes are no exception.

The facts

Among the remedies claimed by Mr Mitchell for unjustified constructive dismissal were compensation for hurt and humiliation of $100,000; and exemplary damages of $400,000.

Before the Authority investigation meeting, the company wrote to Mr Mitchell on a "without prejudice save as to costs" basis offering to pay him in full and final settlement $13,000 as compensation for hurt and humiliation. Mr Mitchell did not respond to the letter.

He was unsuccessful in the Employment Relations Authority, but on appeal, the Employment Court upheld his claim.

The Court found that the company had failed to respond to Mr Mitchell's complaints and to review his working conditions on his return to work from sick leave following a work related accident. Further, it had provided incorrect information to ACC without offering him the chance to comment. This resulted in his ACC claim being initially declined.

In monetary terms, however, Mr Mitchell was only partially successful in the Court. He was awarded $10,000 under s 123(1)(c)(i) of the Employment Relations Act 2000 (for hurt and humiliation) – less than the amount of the company's settlement offer. His claims for lost wages and exemplary damages were dismissed.

When assessing costs, the Employment Court disregarded the company's settlement offer because it did not address the personal vindication element which it thought was "at the heart" of Mr Mitchell's claim. In the Court's view he was not motivated by money. The Court formed this view on the basis of its conclusion, (which the Court of Appeal later found to be erroneous), that Mr Mitchell had abandoned his claim for exemplary damages. The Employment Court ordered Bluestar to pay Mr Mitchell's costs of $5,500.

Costs order reversed

The Court of Appeal accepted that there could be cases where vindication (through seeking a statement of principle) and reputational factors would be relevant to the assessment of costs. Therefore, costs assessments should not be confined solely to economic considerations.

In the above case, however, the Court of Appeal considered that the company's offer of $13,000 was reasonable, and did convey a distinct element of vindication to Mr Mitchell. It found that Mr Mitchell had not abandoned his claim for exemplary damages and was clearly motivated by money.

Interestingly, the company did not seek costs against Mr Mitchell, and therefore this was not considered by the Court.


Disclaimer

This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.