Case: Calderbank v Calderbank [1976] Fam 93
Outcome: cited
should now be given of the various offers made by Flottweg and of Olivaylle's responses to those offers, including its counteroffers. It is convenient in so doing also to set out Olivaylle's submission as to why I should not regard its rejection of a particular offer as at least imprudent. Flottweg's solicitors to Olivaylle's solicitors - 18 August 2006 Your client has demanded that it be reimbursed the full amount of the purchase price "in accordance with the contract". That demand is rejected. Without addressing any of the reasons why the equipment might not have achieved the desired yield, your client is patently not entitled to a full refund under the contract. In particular, and without limitation, the terms of the contract expressly include that "Flottweg's liability howsoever arising should be limited to 5% of the contract price including damages for delay" (see page 15 of the order confirmation dated 8 February 2005). Our client appreciates that litigating a matter to judgment carries risks, expense and delays. Our client would prefer to reach a commercial solution with your client, including in order to preserve the business relationship that was established between our respective clients which (which have been instructed) has been otherwise good. Our client is prepared to settle the dispute with your client on the following terms: Our client pay to your client 10% of the asserted contract price, namely $113,112.40. The end date of the warranty period be extended from 28 February 2007 to 30 Jun 2007. This offer remains open for acceptance until 5pm on 1 September 2006 after which time it will lapse. In making this offer, our client does not make any admission or concession. It is simply made in order to attempt to resolve the dispute on a commercial basis. Olivaylle's submission : It was submitted that the letter was sent before the institution of proceedings, contained no supporting rationale, did not acknowledge a right of withdrawal and in any event was open for only a short period. The point concerning the sending of the offer before proceedings was not one chronology but rather related to the absence of a supporting rationale and was put as a way of highlighting that Olivaylle was not at that stage seized with knowledge of the case that came to be put against it. Having regard to these circumstances, it was submitted that it was not unreasonable for Olivaylle to have rejected this offer. Olivaylle's solicitors to Flottweg's solicitors - 30 August 2006 [O]ur client was entitled to withdraw from the contract after the expiry of a reasonable period of grace. On 21 February 2006 our client wrote to your client putting them on notice that unless the Olive Oil Line was modified or rectified to enable it to comply with the contract, our client would withdraw from the contract on 30 June 2006. Our client reiterated on 19 June 2006 that unless your client could solve the five problems as listed in that letter, it would cancel the contract. Again our client confirmed that it had provided your client with a period of grace to the end of 30 June 2006 to correct the non-conforming items. As you are aware, on 25 July 2006 Wallmans Lawyers, on behalf of our client, sent a letter to your client and amongst other things, put your client "...on notice that the period of grace has expired and our client has withdrawn from the contract." Our client is therefore entitled to have the purchase price refunded. We confirm that our client has instructed us to make one final attempt at settling this matter before proceedings are commenced in the Federal Court of Australia (Adelaide Registry). The without prejudice offer is as follows: Within seven days of receipt of this letter, your client will pay into Wallmans' trust account the sum of $224,339.96 being the value of the letter of credit as converted by your client from Wachovia Bank LC #SM 212584W on 1 August 2006 after having been notified that our client had withdrawn from the contract. On or before 30 January 2007 your client to supply and exchange their present decanter model #Z53-4/454 for their newest decanter model #Z73-4/454 in sealed N 2 version, including SIMP drive, on the run decanter settings and adjustments, change capabilities, all electronic items pertaining to this model, including the under decanter sieve and exchange of the bowl of the Flottweg separator AT1600DL in nitrogen flushed version for your client's newest improved bowl. Your client will then proceed to water test these items. No latter than 30 January 2007 your client will have delivered and installed a new substitute 100 rpm gearbox for the inclined paste conveyors into the malaxeurs, to replace the much slower gearbox mistakenly sent, by your client, for the 2006 harvest. Your client will extend the present processing line contract warranties to 30 days after the completion of the 2008 harvest. Once the items in points 2 and 3 above have been supplied and installed and tested to our client' satisfaction, our client will then pay your client the sum of $112,169.98 (being 50% of the amount returned to your client as set out in point 1 above). During the 2007 harvest, scheduled to commence mid-April 2007, your client's processing line will be tested for compliance with the following contract guaranteed parameters: (1) Minimum throughput of 5 tonnes per hour starting at the olive washer/deleafer; (2) Minimum processing line oil recovery of 85% of the maximum oil content in the olives as determined by an approved IOOC laboratory; (3) Processing line oxygen level starting at the malaxeurs of less than 1% oxygen. After your client has complied with points to 6 above, our client will pay your client the sum of $67,301.99 (being 30% of the amount returned by your client as set out in point 1 above). After your client has corrected any deficiencies found during the 2007 olive harvest either by repair or replacement, and the process line has met all guarantees contained in the contract of 8 February 2005, our client will pay to your client the sum of $44,867.99 (being 20% of the sum returned by your client as set out in point 1 above) after deducting from that sum all of our client's reasonable legal costs. We would be pleased if you would obtain your client's instructions in respect of the above offer. Should your client accept the above offer, Wallmans Lawyers will attend to drafting the requisite Deed of Discharge and Release. Flottweg's solicitors to Olivaylle's solicitors 5 September 2006 Our client has considered your client's settlement offer. In our client's view that offer represents a much more reasonable position than has hitherto been adopted by your client. However, our client cannot accept that offer in its current form as it: leaves aspects of performance subject to your client's discretion; and does not address what should happen in the event that the parameters in 6.1 to 6.3 of your client's offer are not met and accordingly leaves the matter potentially unresolved. Our client proposes that the matter be settled on the following terms: Our client pay to your client 5% of the asserted contract price, namely $56,556.20 within 7 days of a binding agreement having been executed. Our client provide your client with the following items of replacement equipment free of charge: (a) 1 x Decanter model Z6E-4/454 SIMP DRIVE, including electrical installation, necessary frequency converters, solids outlet, feed inlet and base frame. (Note that the model Z73/4/454 is not available in olive oil version); (b) Exchange Bowl of Flottweg Separator AC1500; and (c) 1 x 100rpm gearbox for screw conveyor, all within 5 months ex works Germany (approximately 6 &#189; months DDP Kaniva) after a binding agreement having been executed. Subject to 4 below, the end date of the warranty period in respect of the design and quality of the materials in the equipment supplied (including replacement parts to be supplied) be extended from 28 February 2007 to 30 June 2007. Your client to provide a comprehensive release to our client from or in respect of any claims or obligations (present or future) in relation to the equipment supplied, including, but not limited to, oil yield, sustained oxygen level and process tonnage throughput. This offer is an offer in principle only and is not (by acceptance or otherwise) intended to give rise to binding legal relations. As an offer in principle it remains open for acceptance until 5pm on 11 September 2006 after which time it will lapse. In making this offer, our client does not make any admission or concession. It is simply made in order to attempt to resolve the dispute on a commercial basis. If this offer is not accepted or lapses then our client's reserves its rights to tender this letter to the Court following judgment in relation to the award of costs. Olivaylle's submission: The submissions made in respect of Flottweg's solicitor's letter of 30 August 2006 were repeated. In addition, it was submitted that, when regard was had to the form of release proposed, the offer of replacement equipment had about it the quality of giving with one hand and taking with the other. Olivaylle might still have been left with a line that met none of the contractual performance criteria. It was further submitted that the offer was one in principle only, ie it was not capable of immediate acceptance. In all of these circumstances it was submitted that it was not unreasonable for Olivaylle to have rejected it. Olivaylle's solicitors to Flottweg's solicitors 7 September 2006 Our client rejects your client's offer contained within the facsimile of 5 September 2006. Our client reiterates the offer as set out in our facsimile of 30 August 2006. Our client instructs us to keep the offer open until the close of business on Friday 8 September 2006. Should the sum of $224,339.96 not be deposited into Wallmans Trust Account, being: National Australia Bank BSB: 085 086 Account No: 50-799-4198 we will file proceedings in the Federal Court of Australia and serve the same direct on your client. Unless we hear from you before the close of business on Friday 8 September 2006, we will no longer communicate with you but only with your client until advised otherwise. Flottweg's solicitors to Olivaylle's solicitors - 30 January 2007 We refer to the letter from you to our client of 16 November 2006 and your client's Application and Statement of Claim. We note that in your letter you stated that: "We put you on notice that whilst the Olive Oil Line remains in our client's possession that our client merely treats themselves (sic) as caretakers of the Olive Oil Line and that all losses which they are now incurring or have incurred since entering into the contract with you have been and will continue to be, in your account." We also note that in your client's Application it seeks an order that "Flottweg collect the Olive Oil Line". Can our client take it from those statements that your client does not intend to use the Olive Oil Line in future? If so, then our client would be prepared, without admission and without prejudice to your client's claim, to collect the Olive Oil Line and pay to your client the net proceeds of any future re-sale. If, on the other hand, your client intends to use the Olive Oil Line in future then please advise the value that your client presently ascribes to the equipment. This information is necessary as if the value that your client ascribes to the equipment is less that that which our client would expect it to reach on the second hand market then our client may be prepared, again without admission and without prejudice to your client's claim, to remove the equipment and pay to your client the net proceeds (after deducting our client's costs) of any re-sale. For the avoidance of any doubt, our client's proposal would be without prejudice to your client's rights to seek to claim any balance from our client in the current proceedings. We note that arrangements would need to be agreed in relation to the inspection and testing of the equipment by both parties for the purpose of evidence in the proceedings prior to its removal. We see no reason why satisfactory arrangements could not be agreed. If your client does not intend to continue using the equipment then a decision as to the above matters must be made soon. If your client declines or does not respond to our client's offer then our client will rely on this letter and the in-principle offer contained in it in relation to any issue of damages and mitigation to which it may be relevant. Olivaylle's submission : In respect of this letter, too, it was submitted that the offer was one "in principle" only and not expressed in clear and unambiguous terms. On these bases it was submitted that the offer was not one which ought to be regarded as of the type and with the consequence described by Cairns LJ, Scarman LJ and Sir George Wilmer agreeing, in the well known case, Calderbank v Calderbank [1976] Fam 93 at 105-106. Offer of Compromise Flottweg to Olivaylle 14 August 2007 The following offer of compromise is made pursuant to Order 23 rule 2(1) of the Federal Court Rules . Without prejudice and without admissions the respondent offers to compromise these proceedings on the basis that the respondent pays the applicant the sum of $322,000.00 (exclusive of costs) in full and final satisfaction of all claims made by the applicant in these proceedings. This offer is open for acceptance by the applicant for a period of 28 days from the date of this offer. Following a query on the subject of costs made by Olivaylle's solicitors upon the receipt of this offer, Flottweg's solicitors replied on 30 August 2007 that, "This offer is exclusive of costs. That is, if accepted, our client will be required to pay your client's costs in an amount as taxed or as agreed." Olivaylle's submission : This was said to be an offer which but purported to comply with the Rules. It was submitted that it was not accompanied by any explanation and that, in those circumstances it was not unreasonable to reject it. It was further submitted that, upon its expiry, it was spent, having no ambulatory effect. Thus, later developments such as the service of the filing of Flottweg's affidavit material in response to the original pre-trial directions and the opportunity thus presented for knowing the case Flottweg intended to present factually were irrelevant. More generally, I was, on Olivaylle's behalf, quite properly reminded of an observation which I had made when deciding the costs consequence of the application by Flottweg for leave to adduce evidence from Mr Lorenz, that the grant of leave might also have consequences in relation to the determination of the costs of the trial. The reminder was made as part of a submission that the case ultimately exposed to Olivaylle at trial by Flottweg was different in its evidentiary sweep to that which existed in chief at its commencement. It was further submitted on Olivaylle's behalf that there were multiple issues in the trial in which the evidence overlapped in terms of relevance. By way of example, it was submitted that, even if it were concluded that Ms Ash's evidence carried with it for Olivaylle a particular cautionary note in terms of pressing a case for damages resulting from a lost or postponed opportunity to derive profits in the American market, the evidence necessary to show that the contractual performance criteria had been breached, which was one precondition to the proving of such a loss, overlapped with proofs necessary to show that the contractually conferred right to withdraw had arisen. It was also noted that Ms Ash's evidence was not available to Olivaylle even when the time for acceptance of the last of Flottweg's offers was open. Yet further, it was submitted that the contractual right of withdrawal was novel in terms of local precedent, such that it was not unreasonable in any event for Olivaylle to press a case for a refund in full of the price paid. This was linked with the submission as to overlapping evidence by way of developing an argument that, even if Olivaylle had failed in its claim for damages in respect of the lost or postponed American market opportunity, but succeeded in proving a right to withdraw, it may well have received the whole or most of the costs of the proceeding. It was consequentially submitted that it was neither unreasonable nor imprudent for Olivaylle to have pressed ahead with the whole of its case notwithstanding the offers successively made. In this regard, it was submitted that it was necessary to guard against the application of the false wisdom of hindsight to forensic value judgements which were not unreasonable at the time they were made. I am bound to follow matters of principle enunciated by the Full Court. In that regard, it may be, as Buchanan J highlights in the following passage from his judgment in McDonald v Parnell Laboratories (Aust) (No 2) [2007] FCA 2086 ; (2007) 164 FCR 591 at 597, [22] , that there is a difference in opinion at intermediate appellate level as to whether, for the purpose of satisfying a condition precedent to the awarding of indemnity costs and as an alternative to "imprudent", the rejection of an offer of compromise should be able to be described as "unreasonable" or "plainly unreasonable": In Dukemaster Pty Ltd v Bluehive Pty Ltd [2003] FCAFC 1 ( Dukemaster) Sundberg and Emmett JJ said, in a case like the present where O 23 r 11 did not apply because an applicant had been wholly unsuccessful, that an applicant for a more generous award of costs than party-party costs 'must show that the rejection of the offer was imprudent or plainly unreasonable' (see at [7]). There has been doubt expressed about the soundness of the statement in Dukemaster that rejection of an offer, if unreasonable, must be 'plainly unreasonable' in the light of the earlier judgment of a Full Court in Black v Lipovac [1998] FCA 699 ; (1998) 217 ALR 386 at [217] [218], to which Wilcox J also referred in Coshott (see Seven Network Limited v News Limited [2007] FCA 1489 at [59] [62]). In the earlier of the Full Court authorities, Black v Lipovac [1998] FCA 699 ; (1998) 217 ALR 386 at 432-433, [218] , the point was made that the conduct of an offeree need not be "plainly unreasonable" in order to warrant the ordering of indemnity costs because "To adopt an especially high standard of unreasonableness would operate as a fetter on the discretion to award indemnity costs and diminish the effectiveness of the Calderbank offer as an incentive to settlement." I respectfully agree and, for that reason, would choose to follow the earlier Full Court authority were that to be critical to the resolution of the costs application. It is not though because in both Black v Lipovac [1998] FCA 699 ; (1998) 217 ALR 386 and Dukemaster Pty Ltd v Bluehive Pty Ltd [2003] FCAFC 1 the alternative of imprudent rejection was acknowledged. Like Buchanan J in McDonald v Parnell Laboratories (Aust) (No 2) and, as his Honour noted (at [22]), like Heerey J in AFP Properties Pty Ltd v Kestrel Holdings Pty Ltd (No 3) [2007] FCA 2016 at [24] [25], it is sufficient to assess whether the rejection of any of the offers was, "imprudent". That basis of assessment accords with the exemplar given by Sheppard J in Colgate-Palmolive Company v Cussons Pty Limited , which I have already noted, whose judgment, as Heerey J acknowledged in AFP Properties (ibid), is the locus classicus on the subject.