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Think twice before rejecting a Calderbank offer

26 August 2019 Natasha Naidoo, Norton Rose Fulbright

In May 2019 the Bloemfontein High Court confirmed that a secret offer which is made by any party to a damages claim (including the plaintiff) to save costs will affect the costs order. Such an offer is known as a Calderbank offer with origins in English law and similar principles apply in the South African legal context.

A patient had instituted action against her neurosurgeon as well as the hospital to which she was admitted after she experienced complications following spinal surgery. The plaintiff’s allegations concerning her treatment and management during her hospitalisation are not, for the purposes of this article, relevant. What is significant is that the plaintiff made three Calderbank offers to the hospital to settle the claim on better terms for the second defendant than the eventual outcome for it.

In deciding whether a punitive costs order should be imposed on a party who rejects a Calderbank offer, the court will consider at what juncture of the proceedings the offer was made; the time period provided for acceptance of the offer; the reasonableness of the offer; the prospects of success of the party to whom the offer is made; whether the offer was made in clear and concise terms; and whether the offer suggested an indemnity for costs if the party to whom the offer was made rejected it.

The court referred to the judgment of AD & Another where it was held that a court must consider whether the defendant caused the plaintiff to incur unnecessary costs by refusing to accept the settlement offer or by failing to make a counter-offer. In deciding on this issue, a court will consider:

  • Whether the defendant made a reasonable effort to settle the matter;
  • Was the offer made was less than the amount claimed, following a proper quantification of the claim;
  • Was the defendant allowed adequate time to consider the offer;
  • What the difference is between the amount offered and the amount awarded by the court;
  • Is a costs order on an attorney client scale appropriate considering the nature of the proceedings and the financial positions of the parties.

The court applied the principles in AD & Another and held that the second defendant should have accepted the settlement offer and therefore it was ordered to pay the plaintiff’s costs on the punitive attorney and client scale, and ordered to pay the costs of the first defendant.

In light of the above, it is advisable to make an offer to compromise the claims one party has against the other party either as a secret informal offer or in terms of the rules of court. The offer should be set out in clear and concise terms with a proper explanation as to how the amount being offered has been calculated. The offer should be easily capable of acceptance and the party to whom the offer is being made should be afforded the opportunity to query any aspect of the offer.

A party to whom the offer is properly made runs the risk of an adverse costs order being awarded against it for failure to accept an offer which is reasonable in the circumstances.

The judgment is Van Reenen v Lewis 2019 JDR 1150(B).

First published by: Financial Institutions Legal Snapshot

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