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21 February 2012
While the award of costs is at the discretion of the courts in Ireland, as a general principle, costs follow the event.(1) Therefore, although there are exceptions (eg, complex litigation where a multitude of issues arise, in which case discrete cost awards might be made), a party that is overall successful in litigation can expect to be awarded its costs.
Where a party believes that it may have liability in respect of proceedings, it can take steps to protect itself against a costs award that might be made against it. For example, it can lodge money in court or – as is increasingly often the case – make a Calderbank offer to settle, which the court can take into account when considering costs. Statutory Instrument 12/2008 (which amends Order 99 of the Rules of the Superior Courts) specifically provides that a court may have regard, when awarding costs, to the terms of any offer in writing sent by a party to any other party to satisfy the claims being advanced. A recent case has again demonstrated how offers to settle – or Calderbank letters – can have cost implications where they are unreasonably refused.
A Calderbank letter is a letter which is marked "without prejudice save as to costs" and sent by one party offering to settle a claim for a specified sum. The court is not made aware of the offer until it comes to determine the question of costs. Generally speaking, if a successful party is awarded more by the court than it is offered in the Calderbank letter, it is said to have beaten the offer and the court's discretion regarding costs is exercised in its favour. However, if the successful party fails to beat the offer, the court should take that into account and disallow a portion of the successful party's costs. The rationale behind this is that if the offer had been accepted, the litigation could have been compromised earlier. The Calderbank offer effectively operates as a penalty or disincentive to an offeree for rejecting a reasonable offer. If pitched at an appropriate level, the Calderbank offer will be sufficiently attractive to the recipient to accept, bearing in mind the risk of the costs consequences if it fails to beat the offer at trial.
Such offers were recently considered in Geraghty v Galway County Council,(2) where the court clarified that:
"The purpose of such a Calderbank letter or offer, as it is commonly known, is to promote the settlement because of the party's consciousness of a potential costs penalty if a reasonable offer is refused. The Calderbank letter also brings to the court's attention any unreasonable behaviour of parties and recognises the offerer's willingness to reach a settlement. The rule does not require any necessary formality nor, indeed, separate Calderbank letters to be sent to the parties."
The court noted that the leading Irish authority is the decision in Murnaghan v Markland Holdings Ltd,(3) in which a 'without prejudice save as to costs' letter offered the sum of €300,000 in full and final settlement of all claims in the proceedings, without admission of liability. The offer further stated that if the plaintiff did not recover more than the €300,000 offered, the letter would be brought to the attention of the court and appropriate orders would be sought in light of the offer. The plaintiff was ultimately awarded only about 80% of the amount offered and the defendants submitted that the court should have regard to that in exercising its discretion regarding costs.
The judge in Murnaghan noted that no Irish jurisprudence regarding Calderbank offers as they related to costs had been cited, although she did accept that the principle had previously been recognised in Ireland.(4) She also cited Foskett in The Law and Practice of Compromise concerning the Calderbank jurisprudence, noting that:
"This is an offer expressed to be 'without prejudice except [or save] as to costs'. In other words, it is intended to have all the features of a pure 'without prejudice' offer, but enables reference to it to be made on the issue of costs if it is not accepted. An offer of settlement of this nature first gained more widespread recognition following a Family Division case [Calderbank v. Calderbank  Fam. Law 93], although it had been used fairly widely in other Divisions and its use had been commended and encouraged."(5)
The judge held that the Calderbank offer should have no bearing on the issue of costs. The first reason was that the offer had been made on the first day of the hearing, which she felt was too late: "While it came literally at the eleventh hour, metaphorically it came way beyond 'the eleventh hour'." More importantly, the judge noted that the offer as made in this case left liability for costs, including the costs which had accrued to the date of the offer, at large. Since the offer lacked certainty as to the totality of the outcome flowing from either acceptance or non-acceptance, it was impossible to determine whether the offer had properly been beaten. Rather, the judge held that such certainty was a "pre-requisite to penalising the offeree for non-acceptance".
In the more recent Geraghty decision, which dealt with the costs arising from the substantive hearing, the court was referred to a 'without prejudice save as to costs' letter. In considering the principles arising from such a letter, the court cited the Murnaghan decision at length. The court noted in particular that, while the genesis for Calderbank offers derived from a family law case, their use is more extensive than family law, and this broadened use was both commended and encouraged. The court also noted that since the Murnaghan decision, Statutory Instrument 12/2008 had come into effect, which gave further legitimacy to the court's consideration of the impact of settlement offers on costs.
The defendants in Geraghty offered, by way of a 'without prejudice save as to costs' letter, specific sums to both Mr Geraghty and fellow plaintiff Mr Gilmore in respect of their consequential loss claims. The letter was stated to be open for acceptance for a period of 14 days, and if accepted, the plaintiffs' costs would also be met by the defendants. The offer was not accepted.
At the hearing, Geraghty was awarded significantly less than the amount offered and Gilmore was awarded more than the sum offered. The court felt that the Calderbank offer had no relevance on the facts before it with regard to Gilmore, as he had beaten the offer, and ruled that he was entitled to his costs. However, since Geraghty had been awarded substantially less than the amount offered in the Calderbank letter, the court refused to allow him his costs in respect of the claim he had made for consequential losses. Accordingly, it was a relevant factor in making the costs award in this case.
Calderbank letters can be effective in bringing about the resolution of disputes when cast appropriately. If pitched at an appropriate level, they can mean that the refusal of a reasonable offer could have potentially significant cost consequences. If a Calderbank offer is received by a plaintiff, consideration must be given as to whether its non-acceptance puts that plaintiff at risk of not being awarded its costs if it succeeds at trial. For defendants, Calderbank offers can help to bring about early and cost-effective settlement. However, it is important that any such offer be made as early as possible in the litigation process, and that it make express provision for both the substantive matter in dispute and the costs. It should also, of course, be marked 'without prejudice as to costs'.
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